February 22 Friday
The euro weakened against most of its counterparties and fell 50 points to 1.3160 from 1.3210 after the ECB announced a much lower-than-expected bank repayment on the second 3-year LTRO on February 27. The euro trimmed its gains further after the European Commission’s structural and deficit reduction target report.
The ECB said that 61 billion euros will be repaid at the first opportunity for banks to return funds from the ECB’s second 3-year long-term refinancing operation that was conducted in February 2011. The market was expecting a larger repayment number of 125 billion, which led to the reversal of the euro’s initial 30 point gain to 1.3240 from 1.3210 following the better-than-expected German IFO Business sentiment report for February.
The ECB said that 356 banks will participate in the second LTRO allotment next Wednesday and that 1.744 billion euros will be repaid at the fifth early repayment opportunity for the first LTRO allotment.
The German IFO Business sentiment index for February rose to 107.4, above the median forecast of 101.6. The previous month was +104.3.
The European Commission report predicted the Eurozone’s economy will shrink for a second year in 2013. GDP is expected to fall to -0.3 percent in 2012, compared with a November prediction of 0.1 percent growth.
The European Commission also predicts Spain will miss its structural and nominal deficit target. Spain missed the 6.3 percent ratio to GDP deficit target for 2012 with a result of 10.2 percent. The report added that Spain will have a deficit of 6.7 percent rather than the 4.5 percent set by the EU finance ministers.