Monday, June 23, 2014

Euro-Zone, More loans for more liquidity…

The shared currency edged lower against the greenback on Friday, but still ended the week higher after the Federal Reserve indicated that its isn’t going to raise interest rates for a long period of time. The greenback remained under pressure after the Fed gave no indication of when interest rates could start to rise at the conclusion of its two-day meeting on Wednesday. In addition, the Fed’s forecast of where interest rates might reach in the long term fell from 4% to 3.75%. The central bank cut its bond purchases by $10 billion a month, to $35 billion, saying there was "sufficient underlying strength" in the U.S. economy to continue tapering. Despite this, the Fed also lowered its forecast for growth this year to a range of 2.1% to 2.3% from 2.8% to 3.0% previously, due to "unexpected contractions" in the first quarter as a result of the unusually harsh winter.

The Fed acknowledged the recent increases in inflation and drop in unemployment, but Chair Janet Yellen said no formula was in place for when interest rates would start to rise. In the blue region, The ECB plans to offer banks targeted long-term loans, or TLTROs, of as much as 400 billion Euros ($544 billion) for four years, with the condition that they boost credit to companies and households. By offering the loans at a small premium to current ultra-low rates, the ECB is signaling that borrowing costs will eventually increase. Banks have an incentive to use the program if they believe rates would be higher at the end of the loan period. The ECB’s benchmark rate is 0.15%. Euro dipped 0.06% to 1.3598 late Friday, but posted a weekly gain of 0.47%.

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