40 dollar threshold which is now in sight

A crucial issue should to invite to the meeting of the European Central Bank (ECB) today: the rate of Exchange, and the rise of the euro against most currencies in particular. Jean-Claude Trichet, President of the institution, could be brought to repeat his message of a year ago, stating that "excessive volatility movements disorderly on the currency market reduce the economic and financial stability." In October 2009, the single currency was approaching dangerously 1.50 dollar threshold. The sovereign debt crisis that has caused a decline of the euro (down to 1,1876 in June), it is 1.40 dollar threshold which is now in sight. Yesterday, the European currency touched a new high point since early February, over 1.39 dollar later in the day.

The rise of the single currency increases the dilemma of the institut d ' émission, torn between the need to get out of the device of crisis and the risk of breaking the economic recovery.

The ECB is currently distinguished from its homologous main (US Federal Reserve, Bank of England and the Japan Bank), which are moving towards more exceptional measures to support the markets and the economy. The Japanese authorities decided this week to create a fund to buy 5,000 billion of financial assets and have lowered their rates to 0. The Bank of England and the Fed should soon resume their "quantitative easing" device, which is to buy securities, including loans of State. The market is almost convinced that the Fed will do in November, at its next meeting. The last release of monetary policy referred to a deflationary risk to the US that the injection of liquidity can counter. If the effectiveness of the "quantitative easing" on rates is not demonstrated, its effect on the foreign exchange is evident.

Conversely, leaving little by little his unconventional program, the ECB further strengthens the euro. The institution has already put an end to some of its operations to supply of liquidity to banks (those in 6 months and 1 year) and must decide the procedure to be applied to other operations of refinancing from January. Currently, the conditions remain generous, since credit institutions to obtain the amounts they want at a rate of 1. But several members of the ECB have criticized "addiction" to the banksthe most vulnerable countries of the euro area - this system and lead to a standardization. Moreover, market participants consider possible an increase in rates to mid-2011. The ECB would be for a time ahead of the US monetary cycle, a perspective that supports the single currency.

What then can do the European Central Bank to avoid a monetary tightening caused by the simple of the euro and which threatens the growth "It has a simple weapon: it may decide to no longer sterilize his borrowing of State purchases and do so as other central banks", suggests Patrick Jacq, to BNP Paribas. This would mean that the ECB stops to the liquidity it injected into the system through its purchases of securities. "But this is highly unlikely as some members of the ECB are insurgents against the program." The strategist j. more likely that the institution to slow down the pace of output of the device of crisis. It could extend certain liquidity-providing operations, as it has already done this year.

"J ean-Claude Trichet should in any case give no signal of intervention by the ECB on the foreign exchange market today," says Cédric Thellier at Natixis. The monetary institution does not have a specific mandate to act on the foreign exchange and has not done since 2000.

In addition, an action coordinated with other central banks is difficult to develop in a context where many countries are accommodated on a weaker currency or directly intervene to weaken their currency, like the Japan.

The solution may ironically come from the United States: as investors are largely prepared for a resumption of purchases of securities, it is not excluded that they are finally disappointed by the extent of the program announced. The Fed also ponders how to calibrate the device.