ECB President Mario Draghi Is Ready to Deploy Another Round of LTRO

September 24, 2013

The US dollar was traded slightly downwards on Monday to most major currencies amid no important US macrostatistics, stock markets decrease and euro-zone ambiguous statistics. The yen grew on the back of stock markets decrease and the euro was negatively affected by euro-zone manufacturing PMI decrease and also ECB President Mario Draghi’s speech. The Australian dollar looked better, which was favored by Chinese Manufacturing PMI growth. 

US Flash Markit Manufacturing PMI dropped to 52.8 p. in September from 53.1 p. in August against the expected growth to 54 p. The decrease happened mainly due to the reduction of new orders and worsening of employment situation. The dollar couldn’t support Chicago Federal National Activity Index which exceeded the expectations in August and grew to +0.14 compared with -0.43 in July after having been at the negative territory for five months. Three month average of the index rose to -0.18 from -0.24.

 

 

Fed member William Dudley said on Monday that the economy was not yet so strong that the Fed could start reducing stimulation. Another Fed member Dennis Lockhart making speech on Monday also said that it would be difficult for the Fed to find a reason for tapering off QE at the nearest meeting on October as published economic data are ambiguous. Recently the dollar has been pressed by the political debate over government spending, which may have a negative effect on the US economic growth. Past Friday US president Barack Obama announced that if the Congress didn’t vote for raising the upper threshold of the public debt, another financial crisis may come into the country.

The euro was traded downwards despite the initial reaction to the landslide victory at the parliamentary elections in Germany on Sunday of the ruling party headed by Merkel who actually may have problems with forming a ruling coalition. Flash Manufacturing PMI of France, Germany and the whole euro-zone dropped in September although it was expected to rise. Euro-zone Manufacturing PMI dropped for the first time after 5-month growth – to 51.1 p. in September from 51.4 p. in August.     

Meanwhile, the same Service indexes rose and turned out better than expected. Euro-zone Composite PMI grew to 52.1 p. – the highest reading since July, 2011 in comparison with 51.5 p. prior month. Some pressure on the dollar was put by the ECB President Mario Draghi’s speech in European Parliament where he said that the central bank was ready to use any instrument including LTRO if needed. Another round of the unlimited loans can weaken the euro.

 

Australian dollar was traded upwards after the release of HSBC Flash Manufacturing PMI which grew to 6-month high 51.2 p. in September against the August reading of 50.1 p. having exceeded the expectations and continued the growth for the second month in a row. China is the largest trade partner of Australia. Chinese economy will accelerate growth rates till the end of 2013, according to the world largest investment company BlackRock. Earlier the Bank of America, UBS and ING raised Chinese economic growth estimate for 2013 after Chinese industrial output statistics data in August showed the most significant growth for past 17 months.

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