Euro Lower as Banks Take Three-Year Loans from ECB

Today, for the first time, the European Central Bank began offering three-year loans as part of a plan to provide struggling countries with the funding to avoid collapsing due to the debt crisis. Even though the measure is supposed to help eurozone countries, the euro has slipped against other major currencies.

The ECB is offering three-year loans to banks, and more than 500 have taken advantage of the loans, with a demand of more than 480 billion euros. Initially, the announcement sent the euro higher on the Forex market, as traders were relieved about the avoidance of an interbank credit crunch.

Now, though, the euro is slipping as other factors come into play. There are still difficulties to be overcome in the United States regarding the economy, and, of course, no one can force the banks that borrowed money to use it to buy the bonds of struggling eurozone countries.

ECB officials and others hope that the banks will use the money to buy the bonds of embattled countries like Spain and Italy, keeping costs down and preventing budgetary collapse, but Forex traders aren’t so sure. As a result the euro is heading a little bit lower.

14:22 GMT EUR/USD is down to 1.3055, off the open at 1.3082. EUR/GBP is down to 0.8319 from the open at 0.8353. EUR/JPY is down to 101.6640 from the open at 101.8950.

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