ECB Keeps Rates at 1% - 13.1.2012

Euro The euro is strengthening against the greenback as we are entering the European trading session. The single currency touched a one-week high (1.2879) today after a couple of successful debt auctions in the euro area this week. In particular Spain raised 9.98 billion euros in exchange for bonds maturing in 2015 and 2016, twice its maximum target, while Italy received 12 billion euros, with the rate on the one-year bills plunging to 2.735% from 5.952% at the last December auction, Bloomberg informed. Yesterday the European Central Bank left its benchmark interest rate unchanged at 1%, while the President Mario Draghi said the bank’s policy had considerably favored a credit shortage aversion. According to Draghi, the ECB’s record injection of cash helped the economy to show “tentative signs” of economic stabilization. Nevertheless he added that “substantial downside risks” for the euro area remain in the air. British Pound The Bank of England also announced yesterday its interest rate policy decision. In line with the majority of expectations, the bank kept its monetary policy unchanged with the key rate at 0.5% and a 275 billion pound bond purchase target. The pound weakened yesterday against both the US and European counterparts as the economic data was weak: industrial production dropped 3.1% in annual figures in November, while the National Institute of Economic and Social Research said its December GDP estimate was only 0.1% on a quarterly basis following a 0.3% growth in November. The pound fell to a three-month low against the dollar (1.5308) and the euro rose today to the highest level in 2012 against the pound (0.8375).