By: Barbara Zigah
Following an initial rally on the news that the ECB’s latest offering had been so well received, the euphoria quickly waned as market players understood that the offer was essentially only a liquidity operation, and could not in any way solve the underlying problem of the Eurozone debt crisis. As reported at 2:14 p.m., the Euro was trading against the U.S. Dollar at $1.3044, well off Wednesday’s rally of $1.3199 and only slightly off the low of $1.327.
The newest offering of unlimited 3-year loans, saw a buy-in of some €489 billion, beating the ECB’s predictions and analysts forecasts of €350 billion worth of loans. Some investors are speculating on the intended purchases, with some believing it may have been used for carry-trade purposes, as was done during a similar offering by the ECB in 2009. However, one analyst from BNP Paribas expects that banks will hold onto the money in anticipation of the new reserve requirements which will require them to raise their respective capital ratios.
With trading volume exceptionally thin ahead of the Christmas holidays, the lack of major E.U. events ahead could mean that the Euro will trade in a tight range, with some predicting that it will likely move no higher than $1.3200.