European Central Bank Ready to Start Bond Buying
The European Central Bank decided on Thursday that they were prepared to start a bond-buying program. This new initiative would lower borrowing rates across the Eurozone and provide much needed relief for debt-stricken nations. As a result of this initiative, the euro reached two-week highs versus the Japanese yen and the United States dollar.
ECB’s Bond Buying Plan
Investors are uncertain of what the ECB bond-buying scheme actually entails. Key details have not been released yet. This plan is viewed as a key component of Europe’s plan to lower borrowing costs. The president of the European Central Bank, Mario Draghi, has stated that the central bank has a backstop mechanism in place to implement the plan. Currently, the ECB has their benchmark interest rate set to 0.75 percent. This rate was expected by investors and shows the continued focus of European markets on the debt crisis.
Earlier this year, Draghi vowed that he was ready to do whatever it took to keep the euro and the Eurozone in place. In July, many investors had speculated about the ability of the euro to remain solvent amid crisis in Greece, Italy, Ireland, Portugal and Spain. Draghi’s comments have indicated that he views the euro as irreversible and wants to integrate monetary policy throughout the economic zone. After the meeting, the euro gained one percent versus the dollar.
Afternoon trading in New York saw the euro rise to a level of $1.3016. At its highest for the day, the euro was trading at $1.3031. This is the strongest level for the euro since September 21, 2012. Versus the Japanese yen, Europe’s currency gained 0.82 percent to reach 102.13. Earlier in the day, it rose to a two-week high of 102.18 yen.
More Stimulus Needed
The United States Federal Reserve Bank released their meeting minutes for the month of September on Thursday. This report showed that many individuals in the central bank believed that more monetary stimuli were needed. During the meeting, members of the Federal Reserve discussed options for dealing with the United States continued unemployment problems and inflation. Just last month, the US Federal Reserve Bank decided to start a large-scale purchase of mortgage bonds.
On Friday, the United States is expected to release their employment report for the month of September. Many economists believe that this report will show a gain of 113,000. This increase will not balance out jobs that are lost and the overall unemployment rate will jump up to 8.2 percent. Last month’s unemployment rate stood at 8.1 percent.
Focused on Debt
Investors are still waiting for Spain to initiate the bond-buying plan offered by the European Central Bank. Earlier this week, the euro rose amid speculation that Spain would be requesting bailout funds by this weekend. Several government officials denied this rumor as investors debated a potential timeline for Spain. The euro has been unable to make significant gains versus the greenback due to this uncertainty. According to some financial analysts, the budget proposal for Spain appears to be designed under the assumption that the nation is going to receive bailout funds.
On Thursday, Spain offered a debt auction totaling 4 billion euros. These bonds are intended to mature in 2014, 2015 and 2017. Unlike previous debt auctions, the yields on Spanish bonds fell.
During trading today, the euro gained against the Swiss franc to 1.2110. It reached a two-week peak earlier in the day before falling to its current total. Against the pound, the euro dropped slightly to 80.42 pence. Previously, the euro had managed to reach a two-week high against the pound.
Bank of England Keeps Rates on Hold
As expected by many analysts, the Bank of England chose to keep their quantitative easing policy on hold. Interest rates at the bank remained unchanged as the pound gained 0.75 percent versus the United States dollar. By the end of the trading session, the United Kingdom’s currency was trading at $1.6194 against the greenback.
On Friday, the Bank of Japan will reveal if they are starting any new easing policies. Investors were wary of this possibility during today’s trading session and trades were somewhat slowed. The yen fell versus the greenback and euro as investors wait out the next day.
Most investors believe that the Bank of Japan will keep its rates steady. By doing this, the bank will be able to figure out the impact of its newest fiscal easing measures. Since the Bank of Japan just initiated new easing measures in September, it is unlikely they will make any changes at the present time. Unless the yen gains unexpectedly in the marketplace, the Bank of Japan is expected to keep interest rates at their current levels.
In the next month, investors may see rate changes from the Bank of Japan. Despite the unnecessary nature of new policies, the Bank of Japan may cave to political pressure. Politically, some people in Japan want the bank to step in and promote a weakened yen. This would work to boost the economy and keep exports affordable for purchasers abroad. With all of the debate over the yen, the currency managed to remain flat versus the greenback at 78.46 yen.
Trading in New York saw gold reach a value of $1,778.50. This marks a gain of $3.40 or 0.19 percent. Silver rose to $16.70 during the morning and then tapered off to finish at $1,796.50 per ounce. This level is the highest price for gold since late February. By the end of the day, silver was at $35.08 per ounce for a loss of 0.06 percent.
The rise in gold can be attributed to the uncertainty in the marketplace. Investors are pensively waiting for further stimulus plans by major central banks. The price of gold generally rises when investors are dealing with an uncertain marketplace and want to avoid inflation. If the payrolls figures are better than expected, it would be a sign that the United States economy is improving.
Meanwhile, oil rose $3.57 or 4.1 percent after the Turkish military began firing on Syria. It is currently being traded at $91.71 per barrel.