© Paul Robson
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Paul Robson
Currency Strategist at Royal Bank of Scotland
The EUR weakened after the European Central's Bank second round of LTRO. What are the reasons for this weakening?
LTRO are increasing amount of euros in circulation. There is now over 300 billion more euros in the monetary system. Therefore, the price tends to go down, it is all about supply and demand. Now we have a small pull back, but we would not expect it to persist, because we think that the market would embrace the potential positive impact on the situation in Europe and for the global economy.
What kind of trend do you anticipate?
We do believe that with market embracing the positive aspects of LTRO, we would not be surprised to see EUR/USD continue to climb higher. However, we would not expect it to go up quickly and to the high 30-ies, giving the underling problems for the euro area remain.
What other drivers might determine the further pair movement in the long-term?
I think, the economic data in Europe would be a key. The recent survey data have improved, having deteriorated quite sharply at the end of last year. If we get a continued improvement in those data and those in the US, then that would tend to seize market worries about how deep insolvency runs within the Euro area. We also look at how some of the weaker nations continue to trade. We would pay attention to the higher yields in Portugal during this morning, which continues to highlight the Euro soft underbelly, the vulnerable part of the Euro.