Wednesday, 7 December 2011

Euro holds breath before ECB, EU summit

 SYDNEY: The euro struggled to make much headway in Asia on Thursday, continuing to consolidate ahead of an expected European Central Bank (ECB) rate cut decision and a crucial EU leaders summit.

The euro was idling at $1.3410, within the tight $1.3332/3486 range of the past week. It nudged up as high as $1.3428 after the Nikkei reported the G20 was preparing a $600 billion lending facility for the IMF to help Europe.

The IMF and a G20 official quickly denied the article, but dealers suspect there is no smoke without fire.
"It's pretty clear that informal talks are taking place. You don't get that many rumours without something going on," said a dealer.

The euro has gained 1.5 percent since it struck a seven-week trough of $1.3210 on Nov. 25.

Investors are wary of taking bets ahead of the ECB's rate review, which is widely expected to see interest rates cut by at least 25 basis points to 1.0 percent.

"At the very minimum they need to do that, plus, they need to introduce longer term LTROs (long-term refinancing operations) in the order of two to three years and they need to ease collateral conditions," said Greg Gibbs, a strategist at RBS.

While he says the chances of all three measures are high, there is also a possibility the ECB could cut rates by 50 bps.

"(This) would probably get the market moving towards a weaker euro and be more risk positive," he added.
Markets were also focusing on an EU summit due to start later on Thursday with hopes for a significant breakthrough in solving the region's debt crisis.

A senior German official dampened hopes to reach a solution, saying Berlin is increasingly pessimistic because some governments don't seem to grasp the gravity of the situation.

Some analysts, though, suspect that Germany is purposely trying to lower expectations so that, when there are announcements on Friday, markets will react enthusiastically.

The euro was slightly up 0.1 percent at 1.2387 Swiss francs . It rose to a one-month high of around 1.2443 francs after the Swiss finance minister said authorities could even consider negative interest rate and capital control options to curb the franc's strength.

The dollar was down 0.1 percent against a basket of currencies at 78.546 and it was stuck at 77.64 yen.

Japan is due to release a raft of data including GDP and current accounts while Australia has jobs numbers for November. Forecast point to a modest increase of 10,000 jobs, enough to keep the unemployment rate steady at 5.2 percent.

Copyright Reuters, 2011