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The euro climbed on Wednesday, helping lift risk appetite across the currency markets, after strong demand was seen for at the European Central Bank’s first ever three-year refinancing operation.
The ECB alloted €489.2bn in its latest long term refinancing operation (LTRO), its first to offer liquidity over a period of three years. The take up was higher than the expected €300bn and 523 bank participated.
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Having been already higher, the euro spiked up to a session high of $1.3197 against the dollar immediately after the ECB’s announcement, before settling back at $1.3164, up 0.6 per cent on the day. Against sterling, the single currency was flat at £0.8352.
“This large bid is positive for the market, given the likelihood of some of this liquidity being used to ease the stress in the funding market and encourage banks to lend to each other,” said Citigroup economist Guillaume Menuet.
The boost given to riskier, higher-yielding currencies suggested some carry trade positions were being taken up. The Australian dollar climbed 0.9 per cent to $1.0165 against its US namesake, while the New Zealand dollar was up 1 per cent to $0.7758.
Sterling’s move higher was little influenced by minutes from the Bank of England’s December meeting.
The vote to leave policy on hold earlier this month was unanimous, but some members of the monetary policy committee noted that the fragile economic conditions, particularly in the labour market suggested “a further expansion of the asset purchase programme might be warranted in due course”.
The pound climbed 0.5 per cent to $1.5729 versus the dollar and was up 0.4 per cent to Y122.35 against the yen.
