Currencies  |  September 04, 2012 12:42:17

Euro shaken by Moody's

Mario Draghi at the European Parliament yesterday defended its plan to purchase bonds of troubled countries. European law makers summoned him to make sure that such an event the European Central Bank is not inconsistent with its mission and powers. In particular, President of the German Bundesbank still stresses that the purchase of bonds by the ECB Southern European countries is nothing else than the monetization of government debt, thus buying bonds of Spain and Italy printed money.

ECB chief advocated by purchasing short-term (1letých, 2-year and 3-year) bonds not debt financing States because these securities would have to be repaid in a relatively short time. So it is just a sort of temporary help or support with unfavorable period spanning southern countries.Mr. Draghi also defended that this step only performs the primary function of the ECB, which is the protection of price stability. M. Draghi also said that now is the right time for the ECB to intervene because its function is to protect the common currency euro zone. If the ECB stood up for the indebted country, their financing costs would inappropriately increased. Confidence in Europe, as we have already had the opportunity to experience it was subsequently shaken. Without confidence in the sustainability of their money and the future value of the economy does not work. In the words of M. Draghi is correct that the ECB intervenes to ensure price stability and confidence in the future of the common currency area.

Investors therefore eagerly await Thursday when expecting Draghi at a press conference reveals details of bond purchase program in cooperation with the ESM.We can not forget that the legality of the ESM will still have to be approved next week by the German court. It will be interesting, for instance, if the countries that will be interested in helping to combat the high cost of financing will have to commit to any fixed reforma.

Euro at these events yesterday reacted very positively. Strengthened by 0.5 percent and even broke through the resistance of 1.26 EUR / USD. Euro in the "rally" nezbránil even worse European economic outlook Moody's. The downgrade justified by the fact that its actions are consistent with a negative outlook rating economies of Germany, the Netherlands, France and Great Britain, which are the main contributors to the EU budget. Eure even not shake even worse yesterday's data from Europe (manufacturing PMI).

These events therefore clearly indicate how strong are investor expectations regarding the plan ECB bond purchases.

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