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Euro Fluctuates; Trichet Refrains From Announcing More Easing

The euro fluctuated versus the dollar after European Central Bank Jean-Claude Trichet refrained from announcing new measures to calm financial markets.

Europe’s common currency depreciated against the Swiss franc as Trichet said the central bank will keep mopping up extra liquidity from its bond purchases, disappointing some traders who bet on so-called quantitative easing. Trichet, speaking at a press conference in Frankfurt, signaled policy makers will continue emergency stimulus measures “with full allotment as along as needed, and at least until April 12.”

“The market was too aggressive and optimistic in its expectations,” said Stephan Maier, a foreign-exchange strategist at UniCredit SpA in Milan. “The bond buying will continue to be sterilized. That has weighed on the market.”

The euro was little changed at $1.3146 at 2:41 p.m. in London. It slid as much as 0.6 percent after Trichet began speaking and climbed as much as 0.6 percent before his remarks. The currency reached $1.2969 two days ago, the weakest since Sept. 15. The euro fell 0.3 percent to 1.3129 per Swiss franc. The dollar was at 84.23 yen, from 84.19 yesterday.

Europe’s common currency rose earlier as Spain sold 2.5 billion euros ($3.3 billion) of notes due October 2013, with investors bidding for 2.27 times the securities on offer. That surpassed the bid-to-cover ratio of 2.16 at a similar sale in October, renewing confidence that so-called peripheral nations could sell debt in the wake of Ireland’s bailout.

Debt Crisis

The euro has dropped 3.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track a basket of 10 developed-country currencies, amid concern that the region’s debt crisis would spread. The ECB’s decision to keep the refinancing rate at 1 percent was predicted by all 52 economists in a Bloomberg survey.

Trichet said an “overwhelming majority” of the 22-member council had backed the bond program and that its purchases would continue to be sterilized, in contrast to the Federal Reserve and the Bank of England. “It’s not quantitative easing, we’re withdrawing all the liquidity,” he said.

“The market was pricing in a good chance that the ECB would take a firm stance to help the troubled states,” said Kathleen Brooks, research director at Gain Capital Group LLC in London. “They have refrained from that and the markets don’t like it. Although they will extend their liquidity facilities at least until the second quarter, what about after that?”

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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