Eur/usd - page 49
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ECB cannot solve Europe's problems: Schaeuble
The European Central Bank cannot solve Europe's problems and its loose monetary policy could even reduce the incentive for governments to implement reforms, German Finance Minister Wolfgang Schaeuble said on Friday.
"There is the danger that this monetary policy, in addition to all good arguments, is understood in some European countries as a false incentive, not to deploy necessary reforms," Schaeuble told the European Banking Congress in Frankfurt.
"As the ECB itself says, monetary policy cannot create sustainable growth, it can buy time for reforms, but it cannot solve the fundamental problems," the minister said.
Throughout the long-running crisis, the ECB has slashed its key interest rates to new all-time lows and also rolled out a number of unprecedented emergency anti-crisis measures.
But it has always acted within its mandate, Schaeuble insisted, rejecting criticism to the contrary within Germany.
"No decision has ever overstepped the ECB's mandate," the finance minister insisted.
The ECB's decision to purchase the sovereign bonds of crisis-wracked countries has particularly angered many people in Germany, who see it as a way of financing government debt which is forbidden under the central bank's mandates.
A number of critics have even taken their case to Germany's highest court, the Constitutional Court, which is currently examining whether the ECB's OMT bond purchase programme is compatible with the country's Basic Law.
The court held a two-day hearing on the issue in June and said Thursday it will not issue its verdict until next year.
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ECB's Nowotny Sees No Deflation Perspective
European Central Bank Governing Council member Ewald Nowotny said on Friday that there is no risk of deflation in the euro area.
"What we see is that inflation perspectives are well anchored," Nowotny said on the sidelines of a conference in Paris.
"So we have low inflation but we do not have deflation," he said. " I do not see a perspective of deflation."
Nowotny, who also heads the Austrian central bank, said record low interest rates in euro area cannot be seen as an equilibrium. On November 7, the ECB cut the key interest rate by a quarter-point to a record low 0.25 percent, given the combination of low inflation, record unemployment and a stronger currency.
However, the policymaker pointed out there is unlikely to be any chance of raising interest rates in near future as the economy faces a long-term stagnation.
Further, Nowotny said he was not optimistic regarding the EU reaching an agreement over the single resolution mechanism, which is meant to deal with weak banks, by year-end. This is a key pillar in the EU banking union.
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Belgium Business Confidence Improves More Than Expected
Belgium's business confidence improved strongly in November, after declining in the previous month, survey results from the National Bank of Belgium showed on Friday.
The business confidence indicator rose to -4.3 from -7.7 in October. Economists had expected the score to climb to -7.
Among different business sectors, confidence improved in manufacturing and construction industries. Sentiment deteriorated in the business services sector.
The confidence indicator for manufacturing rose to -5.2 from -10.4, largely driven by a much brighter assessment of total order books and the level of stocks.
Better demand projections pushed the construction confidence index to -9.2 from -10.3.
Confidence in the business services sector declined, after improving in the past three months. The index fell to 6 from 7.3. The deterioration was attributable to a downward revision of the forecasts for general market demand and company activity.
Sentiment in the trade sector stabilized in November, after five months of improvement. The index score slightly slipped to -8.8 from -8.9.
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GERMAN FINANCE MINISTER: There Are No Longer Risks Of Contagion In The Euro Zone
German Finance Minister Wolfgang Schaeuble said on Saturday that there were no longer any risks of contagion in the euro zone, and Greek Prime Minister Antonis Samaras stressed his country did not need a further bailout.
Schaeuble said Greece's achievements in the last 1-1/2 years, which included better-than-expected growth and progress in reducing its deficit, merited respect. He also pointed to the decline in the difference between yields on German and Greek bonds.
He said government crises and coalition negotiations no longer posed contagion risks for the single currency bloc as a whole, without specifying which country or countries he was referring to.
"The euro is stable, financial markets are no longer concerned about the future of the euro zone and there are no risks of contagion anymore," he said at a conference organized by German newspaper Sueddeutsche Zeitung in Berlin.
Speaking later at the event, Greece's Samaras reiterated that his country did not need a further bailout and instead simply needed to fulfill the terms of its existing program.
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EUR/USD Forecast November 25-29
EUR/USD had an exciting week, taking a dive only to close the week higher. German retail sales, French consumer spending and the Euro-area Unemployment Rate are the main market movers this week. Here is an outlook for these events among others, and an updated technical analysis for EUR/USD.
Rumors about an imminent negative deposit rate of 0.1% hurt the euro, and the clear denial helped it recover quickly. Last week, Markit’s Eurozone Services Purchasing Managers’ Index was released, showing the Euro-zone private sector recovery unexpectedly weakened in November as French figures pulled them down. Germany still shows positive signs, with a strong business confidence from IFO joining the solid PMIs. In the US, the relatively hawkish meeting minutes boosted the dollar only shortly. What is the next move?
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Greece's Samaras Vows: Greece Will Never Leave The Eurozone
Greece's Prime Minister, Antonis Samaras, vowed Saturday that his country will never leave the Eurozone.
"What we're living through now is a Greek recovery," Samaras said at an economic conference organized by German daily Sueddeutsche Zeitung in Berlin. "So, I think 'Grexit' is an obsolete word I never want to hear again."
"It will never happen," he stressed before promising that his country will not need a third fiscal aid programme from its Eurozone peers. By meeting the goal of a primary budget surplus this year, Greece will be eligible to additional help under the current program, he argued.
"The existing programme stipulates that if Greece were to reach a primary surplus ... the Eurogroup will then look at ways of dealing with helping the Greek debt problem," the prime minister explained.
"So, I think this is enough," he reckoned. "We don't need something else. We don't need another programme. We just have to stick by this programme."
Samaras praised his country for having undertaken "a spectacular comeback" nobody believed was possible.
"The recession is over, the recovery is about to begin," he reckoned. "It might be a weak recovery indeed but it is still a recovery."
The prime minister cautioned, though, that "we have still a long way to go." There were still many changes to undertake in his country, he acknowledged. "We have not put on the automatic pilot," he said.
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ECB can take further action if necessary - board member Asmussen
European Central Bank Executive Board member Joerg Asmussen said on Saturday the ECB, which cut interest rates to a record low earlier this month, was ready to take further action if necessary and instruments at its disposal included negative deposit rates.
The ECB slashed its main refinancing rate to 0.25 percent at its meeting on November 7 after inflation in the single currency bloc eased to 0.7 percent in October - well below the ECB's target of close to but just below 2 percent for the euro zone.
"We will take further action if it is necessary to ensure price stability in the whole of the euro zone," Asmussen said at a conference organised by German newspaper Sueddeutsche Zeitung in Berlin.
A negative deposit interest rate was "theoretically a possible instrument", he said, but added that he would be very cautious in using this instrument.
"We discussed it in the ECB Governing Council meeting and are technically in a position to do it but I've always said I'd be very, very careful with this instrument," he said, adding that he would not, however, rule it out in principle.
The ECB's president, Mario Draghi, raised the possibility after the central bank's last policy-setting meeting of applying negative rates but has since downplayed it.
Asmussen reiterated that the ECB would keep its monetary policy expansionary for as long as necessary but he cautioned against using non-standard measures for fear of making people think that the ECB was more pessimistic about the single currency bloc's situation than it actually was.
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EUR/USD weekly outlook: November 25 - 29
The euro gained ground against the dollar on Friday and rose to four year highs against the yen as stronger-than-forecast German business confidence data bolstered the outlook for the economic recovery in the currency bloc.
EUR/USD ended Friday’s session at 1.3556, up from 1.3480 on Thursday. For the week, the pair gained 0.39%.
The pair is likely to find support at 1.3414, the low of November 20 and resistance at 1.3588, the high of November 1.
Germany’s Ifo business climate index rose to 109.3 in November, its highest level since April 2012, from 107.4 in October. Economists had expected the index to tick up to 107.7.
The data pointed to a broad based recovery in the euro zone’s largest economy and eased concerns over the possibility of further rate cuts by the European Central Bank.
The euro also remained supported after ECB President Mario Draghi after downplayed speculation over negative deposit rates in the euro zone in a speech on Thursday.
The euro ended the week 1.81% higher against the broadly weaker yen, with EUR/JPY settling at 137.28, the highest level since October 2009.
The yen weakened broadly amid mounting expectations that the Bank of Japan will implement additional easing measures next year.
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ECB Rate Move Was Not Triggered By Deflation Worries: Coeure
European Central Bank's rate cut in November was not due to concerns over deflation risks materializing, ECB Executive Board member Benoit Coeure reportedly said Monday.
ECB did not act because of worries over deflation risks materializing in the euro area, Coeure said in Tokyo. "We acted because we wanted to keep a sufficient safety margin above zero percent inflation."
With the euro area recovery gathering pace, the central bank still expects inflation to very gradually return to levels below but close to 2 percent, he said.
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ECB’s Hansson Says Rate Cut Options Not Fully Exhausted
European Central Bank Governing Council member Ardo Hansson said the ECB stands ready to cut borrowing costs further and is technically prepared to make its deposit rate negative.
“The options on rate cuts are still not fully exhausted and there are all kinds of other measures that are still on the table,” Hansson said in an interview in Tallinn on Nov 22. “Of course, every time you use one option, you have one less to use. But I don’t see us, by any means, running out of our toolkit of things we can draw on.”
The Frankfurt-based ECB, fighting a slowdown in inflation that threatens to undermine the euro area’s recovery, cut its main refinancing rate by a quarter percentage point to a record low of 0.25 percent this month. Bloomberg News reported last week that policy makers are considering a smaller-than-normal cut in the deposit rate, currently at zero, to minus 0.1 percent if more stimulus is needed.
“We are technically ready” to reduce the deposit rate, said Hansson, who also heads Estonia’s central bank. “We’ve had a tradition of using those 25 basis points so I’d have to look at some analysis of different options. Theoretically, a smaller cut wouldn’t be off the table. Certainly, the bigger the move, the more impact you have.”
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