Reuters: US Dollar Report: FOREX-Euro lifted by ECB news, but outlook still bleak

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FOREX-Euro lifted by ECB news, but outlook still bleak Jun 22nd 2012, 17:03 Fri Jun 22, 2012 1:03pm EDT * ECB eases collateral requirements * "Big Four" in euro agrees on aid to boost growth * Weak German data reminder of Germany's vulnerability By Gertrude Chavez-Dreyfuss NEW YORK, June 22 (Reuters) - The euro firmed against the yen and was flat versus the dollar on Friday after the European Central Bank said it would accept a wider range of collateral for access to the bank's lending, including lower-quality assets, to ease strains in the region's financial sector. The changes include moves to accept residential mortgage-backed securities, securities backed by loans to small and medium-sized firms, auto loans, leasing and consumer finance asset-backed securities and commercial mortgages rated as low as 'triple B'.. The euro recovered some of the previous day's losses on the news even though there already was market speculation regarding an ECB move on collateral on Thursday. The euro hit the session's peaks of $1.2583 and was last at $1.2543, little changed on the day, after falling to its lowest levels in about a week on Thursday. "Anytime you can get the ECB more involved in this process, the market views that as a positive development. They're the ones who can print the money," said Bob Sinche, global head of currency strategy at RBS Securities in Stamford, Connecticut. "The official announcement hit the market in an exceptionally quiet morning," he added. Against the yen, the euro was up 0.3 percent at 100.95 . The euro is likely to stay under pressure, however, 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. Some analysts expressed doubts about the efficacy of the collateral change. "It satisfies liquidity demand in the very near term, which is all they care about right now, but it is hard to see it meaningfully changing the available liquidity for banks," said Aroop Chatterjee, currency strategist at Barclays Capital in New York. He added that funding strains in the euro zone were not as severe as they were last year. In addition, some market participants raised concerns about the potential negative impact of changes to the ECB's balance sheet, which could limit its ability to respond to new financial strains. PROS AND CONS FOR EURO A potential negative for the euro was Germany's insistence 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. One thing going for the euro, however, was agreement among the euro zone's "Big Four" - Germany, France, Spain, and Italy - about a 130-billion euro package ($156 billion) to try to boost growth, although they differed on how to launch joint bonds. . The euro already had been nursing losses earlier in the session in the wake of poor German sentiment data, which reminded investors that Europe's largest economy was also struggling due to the region's debt crisis. The single euro zone currency was on track to end the week lower after two straight weeks of gains. German business sentiment fell for a second successive month in June to its lowest in more than two years, reinforcing indications given by this week's ZEW and factory surveys that the economy was losing momentum. The dollar index was up 0.1 percent on the day at 82.360, having risen to 82.465, 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 after surveys of business activity from China to the euro zone and the United States darkened the outlook for the world economy. The dollar was also up against the yen, rising 0.3 percent to 80.52 yen. Adding to the gloom on the U.S. outlook, Moody's Investors Service on Thursday cut the credit ratings of 15 global banks, including JPMorgan and Morgan Stanley. "I'm sitting on the sidelines - very low risk on the whole compared to what we would normally use," said Pierre Lequeux, head of currency management at Aviva Investors in London. "The big question mark out there is over what is going to come out of Europe. Are we going to see some progress?" Link this Share this Digg this Email Reprints

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