QE talk and Greek trouble hitting euro

Author: Adam Button | Category: Central Banks

Two headlines have knocked the euro on a fresh sprint below 1.3500.

The WSJ reports the Bundesbank would favor ending the ECB sterilization of bond purchases. That would turn the program into outright QE.

Germany’s Bundesbank would favor an end to the European Central Bank’s policy of withdrawing significant amounts of money from the banking system to offset its government-bond holdings, a person familiar with the matter said.

Such a move, which would have the effect of boosting liquidity in the banking system, would be aimed at smoothing out recent volatility in money markets, the person said.

Overall, the ECB has bought only about $270 billion in the SMP program since 2010 so it pales in comparison to the $3 trillion Fed balance sheet but it’s another reason to sell euros.

Second, there is a WSJ report that France and Germany held a secret meeting about the state of Greek finances on Monday and they’re not happy. They believe Greece will need another 5-6 billion euros in the second half of 2014 and want some serious concessions.

High-level officials from the International Monetary Fund, the European Commission, the European Central Bank, senior euro-zone officials and the German and French finance ministers were present, according to people with direct knowledge of the situation

The IMF hasn’t disbursed any aid to Greece since July and is €3.8 billion behind in scheduled aid payments. The IMF insists on having a clear view of the country’s finances 12 months ahead, and this condition hasn’t been met.

It’s all going wrong for the euro now.

Bids at 1.3480 but not large. More at 1.3460/50.

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