European Central bank to unwind support for Banks

Ecb to unwind support for banks-

by Ralph Atkin in Frankfurt Dec-3-2009 The European Central bank's emerging financial market support measures are set to be unword from this month after Jean Claude Trichet,Ecb president rebuffed IMF calls to err on the side of delaying 'exit strategies'.

The Ecb moved on thursday to limit demand for one year liquidity in an operation that will take place later this month and told eurozone bank that other,short term liquidity- boosting operation would be scale back in 2010.The ECb took account of the continuing weakness of some euro zone banks.

Measures, however were bolder than financial markets expected,highlighting Ecb fear that some banks have become overdependent on the liquidity.

Currently some 670bn euro in Ecb liquidity is outstanding compared with typical pre- crisis level of about 450bn euro. The Ecb's financial package action are intended to store up the eurozone financial system after the collapse of Lehman brothers last year.

Euro boosted by ECB liquidity The ECB left euro interest rate on hold at a record low of 1% after policy meeting. John Hardy at Saxo bank said "this was a clear signal in the Ecb's exit strategy from its emerging liquidity provisions for this cycle- a far clearer signal than any that the Federal reserve bank of England had come up with". He said "If equities remain supportive, we should see new hights for the euro against the dollar. The euro rose to 0.3%to 1.5089 against the dollar striking distance of 16 month high of $1.5144 it hit last week. The euro also rose to 0.7% to pound 0.9108 against the pound and climbed 1.3% to Y133.10 against the yen.

Euro zone joblessness hits pleatau

Euro zone unemployent levelled off at a 10 year high in October, according to data released on Tuesday, with a seperate figure from Germany even indicating a small fall in the jobless figures last month.The uninterrupted rise in joblessness in the 16 nation bloc since Feb-2008 pushed unemployment rate to 9.8%on a seasonally adjusted basis.The rise in unemployment in the Euro zone has been much muted in the euro zone than in the US thanks to the Govt.sponsored short-time working schemes that encouraged employers to hold on workers. The headline eurozones hides consid- erable divergence between member states.Unemploment rate in Amsterdam remain below 4% where as in spain 1 in 5workers seeking work.Countries in eurozone have 15.6million unemployed, since the most European Commission began compiling data in the mid 1980's Unemployment rate in Germany surprised the economists as naational statistics brought it to 8.2% to 8.1%.,the first rate drop in three months.In spite of the steepest downturn in Germany the crisis has has little impact on labour market so far vindi- cating the Govt.efforts to expand its short-term subsidiary scheme which covered 1 million workers.In spite of return to growth, in eurozone in 3rd quarter, econo- mists unemployment rate 2 digit in 1st half of 2010.According to details of latest eurozone purchasing manager indices also published report saying that Spain and Greece -national output diminishing faster than in October. Diverging economic performance across eurozone complicates the task of ECB as it prepares to withdraw the exceptional measure taken to support the financial system.

Risk appetite pulls yen from peak

Yen- Last week yen upto the 14th year high of Y84.81 to the dollar on Nove-27.But as risk appetite improved from Dubai's debt problem,this week investors re-entered carry trades and pushed the yen lower. The move was given impetus by Friday's US employment.

The bank of japan as many people believed has come under pressure from the govt., undermined the Yen on tuesday by announcing measure to pump more liquidity into banking system.

The yen fell more sharply against Australlian dollar sliding5.6% to Y82.85 on the week as the Reserve Bank of Ausralia delivered a 3rd consecutive rise in interest rate lifting its main lending rate by 25basis points to 3.75%.

Over the week yen fell 4.6% to Y90.54 against dollar lost 3.7% to Y134.43 against the euro and dropped 4.4% to Y149.01 against the pound.

Over the week the dollar rose 0.9% to $1.4872 against the euro, climbed 1%to Sfr 1.0140 against the swiss frank and gained 0.1% to $1.6499 against the pound.