Euro Steady at $1.30 as ECB Meeting Gets Underway

By Roger Baettig | March 07 2013 8:54 AM

The euro held near $1.30 on Thursday morning as the European Central Bank's monthly meeting got underway and speculation about the bank's actions kept investors cautious.

Reuters

The euro currency sign is seen in front of the European Central Bank headquarters in Frankfurt.

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The ECB is expected to keep its already record low interest rates fixed at 0.75 percent. However, analysts are predicting that eurozone inflation could continue to drop over the next few months, which would justify a rate cut in the future.

Investors will be closely watching the news conference following the meeting looking for clues about a future rate cut and hoping bank President Mario Draghi will answer questions about the ECB's bond buying program, now called the Outright Monetary Transactions.

Economists are predicting that the ECB will have to employ its bond buying scheme to help struggling countries this year, however many feel help for Spain is more likely than Italy. As Italian officials struggle to form any sort government following the gridlocked elections, it is hard to ignore that the vote highlighted Italians' anti-austerity sentiment.

Frustration with current conditions and the German-led path to recovery nearly brought several unlikely candidates, who ran on promises of anti-austerity, to power. With this type of attitude, it is unlikely that Italy will ask the ECB for funding since strict austerity-minded reforms will be necessary in exchange for aid under the OMT plan.

Spain, considered by most as likely to make use of the OMT program, will hold a debt auction on Thursday that is expected to be well received.

Reuters reported that Spain is planning to issue between 4 and 5 billion euros worth of bonds maturing in 2015, 2018 and 2023 to investors looking for high yielding assets. With the OMT as a security net, the sale is expected to draw a decent number of investors.