29/03/2012 Has ECB's liguidity reversed the falling lending trend?
EUR/USD
As reported in the press, the European leaders are considering the possible extending of bailout funds. Released at the end of the day, this news managed to restore confidence in the markets and hold the euro back from falling. As a result, EUR/USD is trading evenly at the same level as a day ago, around 1,3310. Not very prominent, but quite alarming news came in yesterday from the ECB. As shown in the regular statistics, M3 Money Supply grew from 2,5% to 2,8% in February. It indicates the reversal from the terrible figures of December and accounts for the ECB’s liquidity infusions at the time. Anyway, we should bear in mind that the main target was to boost lending to the real sector and this is the point where we have problems. The annual growth rate of private loans, published in the same report, instead of the expected increase showed a significant decline in the sector – from 1,1% down to 0,7%. It points to the fact that the ECB’s money was not spent on lending, as Draghi wanted, but just helped the banks to exchange poor bonds for more liquid ones. Eventually, a considerable part of this liquidity is likely to shortly go into reserves, as many banks have to draw large capitals to meet the new demands of capital adequacy by June. Still at closer consideration, the single currency displays certain stability, gradually winning back figure by figure from the dollar. It will last until the Eurozone indicators enter the red zone as a result of fiscal policy tightening. How much time does Europe have at its disposal, we wonder?
GBP/USD
Yesterday luck failed the pound. As we know, it was one of the strongest rivals of the dollar for a while, but yesterday even before the release of the Final GDP data the currency came under a strong pressure...
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