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ECB Buying Government Bonds As Historic Rate

By:
Barry Norman
Updated: May 26, 2016, 03:32 UTC

The ECB’s massive “Helicopter” money program is having a far reaching effect on the bond markets while showing little results in the Eurozone economy. The

ECB Buying Government Bonds As Historic Rate

The ECB’s massive “Helicopter” money program is having a far reaching effect on the bond markets while showing little results in the Eurozone economy. The euro is trading at 1.1143 showing very little movement after German data this week disappointed. The euro showed only a small response when the US dollar took a breather. According to Bloomberg the European Central Bank expanded the size of its debt-buying program in April by a third to 80 billion euros ($89 billion) a month and appears to be running out of securities eligible under its own rules.

Monetary policy makers increased purchases of Irish and Portuguese bonds last month by less than it did for German debt, suggesting demand already threatens to outstrip supply from some countries. Banks say it might have to include more bonds or risk diluting the stimulus to the economy the quantitative easing is designed to inject. Purchases at the moment are based on the size of a country’s economy and there are exclusions linked to debt restructuring. Rabobank estimates 1.13 trillion euros of bonds currently off limits could be eligible should the ECB change the parameters.

german bonds

The ECB started buying sovereign debt in March last year and has spent more than $800 billion. An ECB spokesman said on Tuesday that the bank is confident the program will continue to be implemented smoothly and it sees no shortage of eligible assets under the current rules. President Mario Draghi said a month ago that there were no plans to make any changes.

Data this week and new European Central Bank staff projections on June 2 will provide an updated outlook. For ECB President Mario Draghi, who cut interest rates to new lows this year and is pumping yet more money into the economy, the key is whether the first-quarter performance is the beginning of a new phase that’ll return inflation to the ECB’s goal or a one off, suggesting more stimulus may be needed.

eurozone slowdown

The dollar backtracked after hitting a two-month peak against its basket of peer currencies on Wednesday, when robust US housing data bolstered the case for the Federal Reserve to raise interest rates in the near term. The US dollar is currently trading at 95.50 down just 0.1%

Just below the high hit after data showed new US single-family home sales surged to a more than eight-year peak in April and prices hit a record high.

While some short-covering emerged after the greenback’s gains, many investors took a breather ahead of data and events in coming days.

“People are keeping a low profile today. Most people are just squaring positions before the end of the month,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. “The dollar’s downside should be limited for now.”

us dollar

The upbeat housing numbers backed the Fed’s April policy meeting minutes, released last week, which hinted that the central bank may raise rates soon if the economy appeared strong enough.

The Canadian dollar rose to 1.084 against its U.S. rival after the Bank of Canada left its benchmark interest rate unchanged at 0.5%. The bank also said in a news release that it expects the devastating Alberta wildfires have hampered economic growth in the second quarter, though it expects growth to rebound in the third. The climb in oil prices has not been helpful as usual for the Loonie.

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