Euro Rallies as ECB Raises Rates and Waives Collateral Rules for Portuguese Debt
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Euro Rallies as ECB Raises Rates and Waives Collateral Rules for Portuguese Debt

Euro Rallies as ECB Raises Rates and Waives Collateral Rules for Portuguese Debt


Both major European central banks have thrown their rulebooks out the window.

The ECB has made a snub at the ratings agencies by saying they’ll continue to accept Portuguese debt as collateral regardless of whether they say that the country has defaulted.

This is effectively giving investors in the peripheral Eurozone countries a free bet which is why we haven’t seen the initial sell off from the Moody’s downgrade on Wednesday cause more of a sell off in equities.

In fact the reverse has happened and once again we see indices spread betting markets happy to move on higher. This shows that investors feel that, regardless of what the credit ratings throw at the PIIGS, the Eurozone will still muddle through it all and the ECB will bail them out.

For the BoE, they too seem to have ripped up their rules by completely ignoring inflation altogether.

Ever since the departure of MPC member, and arch hawk, Andrew Sentence the rate setters have become much more dovish.

This has caused Sterling to get beaten up a little and shown the forex spread betting market that price stability is simply not on the agenda for them, rather as Bill Clinton used to say “it’s the economy stupid”.

It’s now been going on for years, whereby the BoE should actually be hiking rates to reign in inflation because that is their sole purpose. However, they are still preoccupied with the state of the economy, and rightly so considering the state of affairs, so isn’t it time we just changed their remit?

Surely making them responsible for growth as well as inflation, more along the lines of the Fed, is a natural course for them to take.

The Euro/Dollar enjoyed a decent rally from $1.4220 to $1.4374 after the ECB raised interest rates to 1.5% yesterday.

Trichet’s announcement to allow Portuguese bonds to be used as collateral was another catalyst for the Euro but, saying that, it hasn’t done much to help the single currency this morning. The Euro is falling away and currently trading around $1.4316 versus the US currency.

So the Bank of England held rates at 0.5% and the Dollar continued its attack on Sterling, making it three days of weakness in a row. Today we are expecting the UK to show a slowdown for June.

The Sterling/Dollar rate is currently trading at $1.5963 levels not seen since June 28th and, as with the Euro/Dollar situation, sharp movements can be expected over the NFP figure today.

Forex Spread Betting News

For the latest daily forex spread betting articles, please see below.


Forex Spread Betting Comparison

EUR / USD Daily - Spread Size 1 1 1 2 0.8 1 1 1
EUR / USD Daily - Min Stake £1 £0.50 £0.50 £0.5 £1 £1 £1 £1
GBP / USD Daily - Spread Size 2 2 2 3 0.8 2 2 2
GBP / USD Daily - Min Stake £1 £0.50 £0.50 £0.5 £1 £1 £1 £1
EUR / GBP Daily - Spread Size 1 2 2 1 1 1 1 2
EUR / GBP Daily - Min Stake £1 £0.50 £0.50 £0.5 £1 £1 £1 £1
USD / JPY Daily - Spread Size 0.8 2 1 2 0.8 0.8 0.8 2
USD / JPY Daily - Min Stake £1 £0.50 £0.50 £0.5 £1 £1 £1 £1
Comparison Notes.


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'Euro Rallies as ECB Raises Rates and Waives Collateral Rules for Portuguese Debt' by DB, updated 08-Jul-11

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