11 Jul 2013
Flash: Euro to face pressure from ECB policy – UBS
FXstreet.com (New York) - ECB Executive Board Member Joerg Asmussen turned the screw on the euro on Tuesday by initially stressing that forward guidance by the ECB goes 'beyond 12 months', warns Gareth Berry, a Research Analyst at UBS.
In addition, he said he would 'not rule out' another LTRO. The speedy 'clarification' on his comments suggests that the ECB was rather unhappy with the market impact, especially as they are not in the business of talking down currencies.
Yet, behind the scenes the central bank may want to take any form of stimulus it can get, and may be bracing the market for more. Asmussen also concluded that markets are 'not putting too much faith' in 'verbal guidance'. If actions indeed speak louder than words, then the next phase in ECB's policy could be a return to balance sheet dynamics to complement interest rate-based stimulus.
“Whatever their merits, present conditions contrast sharply to late 2011 when they were launched. As such, revisiting LTROs does not appear justified, especially given the weak impact on credit: lending to households fell by 3.5% YoY in May. Lacking a banking union, the effect of LTRO funds will still be marginal, so any reactivation may have another target in mind, namely the euro.” Berry adds.
In addition, he said he would 'not rule out' another LTRO. The speedy 'clarification' on his comments suggests that the ECB was rather unhappy with the market impact, especially as they are not in the business of talking down currencies.
Yet, behind the scenes the central bank may want to take any form of stimulus it can get, and may be bracing the market for more. Asmussen also concluded that markets are 'not putting too much faith' in 'verbal guidance'. If actions indeed speak louder than words, then the next phase in ECB's policy could be a return to balance sheet dynamics to complement interest rate-based stimulus.
“Whatever their merits, present conditions contrast sharply to late 2011 when they were launched. As such, revisiting LTROs does not appear justified, especially given the weak impact on credit: lending to households fell by 3.5% YoY in May. Lacking a banking union, the effect of LTRO funds will still be marginal, so any reactivation may have another target in mind, namely the euro.” Berry adds.