ECB To Flood Euro Area With Free Money

The
ECB are set to flood the euro area with cheap cash on a 3 year loan term. 
The money will be lent at the average of the ECB’s benchmark rate- currently
one percent over the period of the loan.  Basically this is free money for
banks and the aim is to keep the liquidity cycle moving on to companies and
households- the danger and likelihood is of course that the banks take a piece
of the cake and do not share.  However the aim seems to be to sure up the banks’
capital requirements.   The Euro has pushed higher against the USD on
speculation for this move- hitting a high of 1.3185 and yields on Spanish and
Italian government bonds have dropped.  The USD which is the largest safe
haven currency at the moment has also weakened on the positive news; the risk
appetite currencies notably the AUD, NZD completed the cycle and gained.

Over
to the UK and the Bank Of England as expected voted 9-0 to keep interest rates
and Quantitative Easing unchanged in December.  Overall the MPC
saw little change for growth and inflation and thus the news was largely
positive for the pound; in addition UK November public sector net borrowing
data came in slightly better than expected again helping the pound.

Looking
at the markets after a crazy year we are amazingly at exactly the same levels
as 12 months ago for EUR/USD and very similar on GBP/USD after much volatility
in the year.  2012 will start with a heavy focus on US payroll numbers on
January 6.

Report
by Phil Mchugh