The ECB is no able to decide what steps to take as the recession deepens

European Central Bank policy makers are at a loss for what additional steps to take as record low interest rates fail to stem the deepening recession. Officials are hemmed in by European Union rules that forbid the ECB from buying bonds directly from governments and any decision to buy debt in the open market may spark a dispute over which country’s securities to purchase. Options are also limited by the lack of a single euro-region Treasury that would underwrite central bank losses incurred from any new measures. “The problem is that they don’t know themselves what they’ll exactly have to do in the future,” said Juergen Michels, chief euro-area economist at Citigroup Inc. in London. “They are probably much divided on the range of measures available to them.” The EUR/USD is currently trading at $1.2585 as of 8:40am, GMT.

The dollar may rise to a four-month high against the yen should it close above a so-called neckline at 94.65, Citigroup Inc. said, citing technical charts. The level of 94.65 yen represents the neckline of a “very well defined double-bottom” pattern, New York-based Tom Fitzpatrick and London-based Shyam Devani wrote in a research note yesterday. A double bottom forms when a currency makes two consecutive troughs of about the same depth, and indicates a currency may rebound. The neckline passes through the highest point of the double bottom. “The target on a close above here would be for a move to 102,” the Citigroup analysts wrote. “There are increasing signs that, contrary to popular wisdom, we may be starting a period of broad-based yen weakness that could see both dollar- yen and the yen crosses higher in the weeks ahead.” The USD/JPY is currently trading at 93.80 as of 8:45am, GMT.

Bank of England Deputy Governor John Gieve said policy makers are fighting to protect Britain from the threat of a decade-long depression similar to that suffered by Japan in the 1990s. “That is a risk,” he said late yesterday during questions after a speech at the London School of Economics. “It’s a serious risk but we are addressing it. There’s a huge amount of policy easing in the pipeline. I don’t think it’s inevitable.” The Bank of England this month cut the benchmark interest rate to 1 percent, the lowest ever, and sought permission from the government to buy securities to create money. Japanese policy makers hesitated in addressing a banking crisis in the 1990s and then struggled to revive economic growth and fight deflation in what is known as the “Lost Decade.” The GBP/USD is currently trading at $1.4215 as of 8:55am, GMT.

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