Bernanke plays down QE3
01/Mar/2012 • Currency Updates•
Bank of England governor Mervyn King welcomed the ECB loan that removed a disastrous banking collapse in the Eurozone’s weaker southern states. It should be noted that deputy governor Paul Tucker did warn that UK banks were feeling the ripples of the Eurozone crisis despite the ECB action. British part-nationalised Lloyds were one participant, borrowing 311.4bn “to fund a pool of non-core euro-denominated assets.” Meanwhile, another colleague Martin Weale said that the BofE will likely have no reason to further expand its asset purchasing after the current tranche ends in May.
The ECB’s massive lending operation of 530 billion Euros, on top of a similar loan in December, added a liquidity boost that has eased fears about the Eurozone debt crisis. This has helped banks struggling to pay off mounting debts and to mitigate a sharp pull-back in bank lending to customers across ailing European economies. This can be considered Euro negative and risk positive with rises in commodity currencies such as AUD and NZD. German Finance minister Wolfgang Schaeble lowered expectations that in today’s EU summit the European Stability Mechanism will be discussed but will cross that bridge later in March. Furthermore, European diplomat said the Irish referendum has already been factored in.
Federal Reserve Chief Ben Bernanke appeared in front of politicians yesterday and gave no indication that QE3 is on the table. Recent positive data from employment to manufacturing has been calming fears of a sharp slowdown of growth in 2012 and highlights that the US economy is recovering at a better rate than expected. This in addition to the ECB’s action meant the AUD hit a 7 month high, NZD a 6 month high and CAD a 5 month high. Furthermore, Asian currencies made gains capping the best two month advance since April. This can be due to Japan and South Korea’s factory production coming out higher than expected which has meant confidence amongst US consumers a reached 1yr high.