“The euro weakened against the dollar after the European Central Bank awarded a second round of three- year loans to banks, increasing the supply of the currency and boosting higher-yielding assets.
The 17-nation currency declined versus all but two of its 16 major counterparts as the ECB said it will lend financial institutions 529.5 billion euros ($713 billion) for three years, surpassing the 470 billion euros forecast by economists. The Australian and New Zealand dollars extended gains after the ECB announcement on speculation part of the cash will be spent on higher-yielding assets.
“There is a chance that the euro will weaken, at least in the near term, on the ground that growing your balance sheets this much and this quickly can’t be good for the euro,” said Kit Juckes, head of currency research at Societe Generale SA in London. “The long-term loan is more positive for high-yielding assets than euro assets.”
The euro dropped 0.2 percent to $1.3430 at 6:41 a.m. in New York, trimming this month’s gain to 2.7 percent. The common currency declined 0.2 percent to 108.11 yen after rising as much as 0.4 percent before the ECB announcement.
The Frankfurt-based ECB said today it will lend the funds to 800 financial institutions. In the ECB’s first three-year refinancing operation in December, 523 banks borrowed 489 billion euros.
Dollar Weakens
The dollar declined against higher-yielding currencies before Federal Reserve Chairman Ben S. Bernanke testifies in Congress today after saying last month that policy makers are keeping open the option to boost bond purchases.
Bernanke said last month the central bank is considering buying more bonds after policy makers extended their pledge to keep the benchmark interest rate at “exceptionally low levels” at least through late 2014. The Fed has engaged in two rounds of asset purchases, totaling $2.3 trillion in so-called quantitative easing….”
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