Reuters: US Dollar Report: FOREX-Euro rises after ECB eases rules, downtrend intact

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FOREX-Euro rises after ECB eases rules, downtrend intact Jun 22nd 2012, 19:17 Fri Jun 22, 2012 3:17pm EDT * ECB eases collateral requirements to ease pressure on banks * "Big Four" in euro agree on aid to boost growth * Attention shifts to June 28-29 EU summit By Wanfeng Zhou NEW YORK, June 22 (Reuters) - The euro edged higher against the dollar on Friday after its worst selloff in more than six months, buoyed by the European Central Bank's move to loosen lending rules to ease funding pressures on struggling banks. The ECB said it would allow financial institutions to pledge a wider range of assets, including collateral of a lower quality, in exchange for cash. The changes, which will be worth over 100 billion euros, marked the ECB's second such move in six months. Analysts, however, are skeptical about the efficacy of the move and concerns are growing that constant lowering of lending standards could cause the quality of the ECB's balance sheet to deteriorate and limit its ability to respond to new financial strains. "As far as I can tell, the intended effect is to make it easier for people, businesses, banks, etc. to borrow money by utilizing collateral that wasn't available to use before today," said Neal Gilbert, market strategist at GFT in Grand Rapids, Michigan. "Whether this actually works as intended or just leads to more bad loans and, in turn, more bailouts will be closely watched," he said. The euro rose to as high as $1.2583 and was last at $ 1.2566, up 0.2 percent, on track for a weekly decline of 1.1 percent. On Thursday, it fell about 1.3 percent, the worst daily performance since mid-December after a spate of disappointing data around the world prompted investors to seek safe-haven in the U.S. dollar. Against the yen, the euro rose 0.4 percent to 101.08 . T he dollar gained 0.2 percent to 80.44 yen and was on pace for its best week since late February with a gain of 2 percent. The ECB's supportive move comes as Spain braces for a downgrade from ratings firm DBRS by the end of August, which is expected to pile extra misery on the country and its banks. Spanish bond yields surged as high as 7.3 percent earlier this week, before easing on hopes that policymakers will take steps to alleviate pressure on the euro zone's fourth-largest economy. BIG FOUR German Chancellor Angela Merkel agreed with leaders of France, Italy and Spain on a 130 billion euros ($156 billion) package to revive growth on Friday, but resisted pressure for common euro zone bonds or a more flexible use of Europe's rescue funds. Investors' focus now turns to whether a June 28-29 EU summit can back up the expectations of some concrete progress towards fiscal integration and allowing the bloc's rescue funds to buy government debt. "Next week's summit is far too early to expect a concrete road map. Some broad outlines might be forthcoming, but the October summit is likely to be a more likely forum for a more detailed proposal," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. Analysts said the euro is likely to stay under pressure as weak euro zone data and rising borrowing costs for peripheral countries will add pressure on the ECB to cut interest rates or expand liquidity operations. Earlier, the euro had come under pressure after data showing German business sentiment fell for a second successive month in June to its lowest in more than two years. Germany insisted on Friday that Greece must fulfill the terms outlined in its bailout program, adding that there was no room for flexibility with respect to slashing the country's debt to 120 percent of gross domestic product. The new conservative-led government in Greece that took power this week promised to negotiate softer terms on its harsh international bailout. The dollar index was down 0.1 percent on the day at 82.3227, having risen to 82.469, its highest since June 13. The index was on track for its biggest weekly gain since early May, having staged its biggest rally in more than three months on Thursday. Link this Share this Digg this Email Reprints

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