ECB ‘Ready’ to Ease Dollar-Market Tensions
“Without a doubt, unsecured U.S. dollar funding markets have tightened somewhat recently,” Dombret said during a speech in New York yesterday. “If need be, the ECB stands ready to mitigate potential bottlenecks, based on the swap agreement with the Fed.”
The Frankfurt-based ECB loaned $500 million over seven days last week to one euro-area bank, its first such action in six months, as signs emerged that lenders faced renewed pressure to raise funds in the U.S. currency. In the aftermath of the collapse of Lehman Brothers Holdings Inc. in 2008, the ECB also offered one-month and three-month dollar term auctions in response to strains in money markets.
Dombret, who doesn’t sit on the ECB’s Governing Council, added that the “lion’s share” of German and European banks have already used “rather benign” market conditions in the first part of this year to secure “an over-proportional part -- or even all -- of their overall 2011 funding needs in the capital market segment.
“We are very far away from the situation we witnessed in 2008,” Dombret said. The ECB received no bids yesterday in its 7-day dollar tender at a fixed rate of 1.1 percent.
Commenting on the German and euro-area economies, Dombret said that while markets have recently experienced turmoil, the underlying development of the real economy “is not as dire as these turbulences might suggest.”
Data yesterday showed German business confidence fell to the lowest in more than a year after growth in Europe’s largest economy slowed to 0.1 percent in the second quarter and the DAX Index plunged almost 25 percent since late July.
Dombret said the recovery will continue, “albeit at a more moderate pace than before.”
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