ECB move on Greek funding hits euro in Asia

[TOKYO] The euro weakened Thursday after the European Central Bank said it would block Greek lenders from using government bonds as collateral, cutting off a much-needed line of credit.

In morning trade the single currency fell to US$1.1304 (S$1.52) at one stage before ticking up US$1.1344. But while it is slightly higher than US$1.1334 in New York, it is still well off the US$1.1469 seen in Asia before the announcement.

It also bought 132.95 yen, against 132.81 yen in US trade, but still sharply below the 135.04 yen earlier Wednesday in Tokyo.

Traders were rattled by the ECB move, with Wall Street ending broadly lower. The Dow, which had surged during the day, ended flat, while the S&P 500 fell 0.42 per cent and the Nasdaq lost 0.23 per cent Under the terms of its bailout, Greek banks had been given a waiver to use government bonds - which have a junk rating - as collateral as long as Athens stuck to its obligations. The ECB said it took the step because it was no longer confident that Athens could show it was meeting bailout programme requirements.

It means Greek banks cannot pledge their government bonds as liquidity collateral from February 11, leaving them dangerously short of access to funding and darkening hopes for a quick deal on modifying Greece's bailout and avoiding a new eurozone crisis.

It also comes as Greek Finance Minister Yanis Varoufakis prepares to meet his German counterpart Wolfgang Schaeuble Thursday. The meeting will be closely monitored as Germany, the eurozone's main paymaster, is the strongest opponent of any easing in the bailout terms.

"You can see it as euro-negative - this highlights the difficulty of the negotiation," Vassili Serebriakov, a BNP Paribas forex strategist, told Bloomberg News.

In other trading, the dollar was at 117.21 yen, against 117.18 yen in US trade, but still off Tuesday's level around US$117.57.

AFP