Marc Chandler submits:
There has been much anxiety surrounding tomorrow’s expiry of the 442 bln euro 12-month funding operation. Spanish banks in particular were believed to be facing difficulty. Euribor rates had been creeping up. Banks were holding a large amount of funds overnight with the ECB, though earning less than they would in the interbank market.
The ECB offered unlimited 3-month funds today. Estimates were that generally between 200-300 bln euros would be taken down. In fact about 132 bln euros were taken. This much lower than expected amount was seen as a sign that market fears were exaggerated. Banks had prepared for this well, even as the ECB’s Noyer hinted earlier this week that the expiry would not be disruptive. The markets have responded favorably. The euro fully recovered yesterday’s losses to test the $1.2300 area. A break of this could see $1.2350, but the short-term market may not have the conviction to move it through there.
Many investors have found it cruelly ironic that sterling appears to be moving move in sync with the safe haven Swiss franc and Japanese yen than the euro. In fact, sterling is the second best performing G10 currency this month, rising 4% against the dollar. The Swiss franc takes top billing with a 7.3% rise.
