Central banks step in to clam markets. Flood markets with USD
ECB Coordinates With Fed to Lend Dollars to Euro-Area Banks
businessweek.com
Central banks step in to calm markets
By Peter Garnham
The euro advanced on Thursday after global central banks joined forces to provide dollar liquidity to the market, a move that could ease funding pressure on European banks.
The European Central Bank said, in co-ordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, that it would lend eurozone banks dollars in three separate three-month loans to ensure they had sufficient funding until the end of the year.
“The announcement would come as a welcome relief to markets concerned about European banks’ access to dollar funding,” said Divyang Shah at IFR Markets.
He said the co-ordination from the ECB, Fed, SNB, BoJ and BoE was likely to raise the prospect that further policy announcements would be made to deal with more than just the symptoms of the eurozone sovereign debt and financial crisis and actually start to take measures to get nurse Greece back to fiscal health, dispel default fears and inject capital directly into selected banks.
By midday in New York, the euro rose 0.8 per cent to $1.3849 against the dollar, was 0.7 per cent stronger at Y106.18 against the yen and climbed 0.6 per cent to £0.8763 against the pound.
Meanwhile, the dollar suffered, falling 0.2 per cent to $1.5802 against the pound, dropping 0.7 per cent to SFr0.8698 against the Swiss franc and losing 0.2 per cent to $1.0285 against the Australian dollar.
The euro also rose 0.1 per cent to SFr1.2048 against the Swiss franc as the Swiss National Bank reaffirmed its commitment to temper the strength in its currency after imposing a SFr1.20 ceiling against the euro last week.
“Even at a rate of SFr1.20, the Swiss franc is still high and should continue to weaken over time,” the central bank said. “If the economic outlook and deflation risks so require, the SNB will take further measures.”
Calvin Tse at Morgan Stanley said the statement revealed that the SNB was prepared to act further and was likely to set a lower ceiling in the exchange rate of the Swiss franc against the euro in the coming months.
“In our mind, if the market does not move the euro higher against the Swiss franc, the SNB is prepared to,” he said. “Currently, there is no risk of inflation in Switzerland but as the SNB notes, there are downside risks to price stability should the franc not weaken further.”
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