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March 10, 2011

3 Months From Now, US Fed Will Stop Buying

Filed under: Uncategorized — bigcapital @ 5:43 pm
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3 Months from now, US Fed Will Stop Buying.

Thursday, March 10, 2011 — http://marketpin.blogspot.com

== US Fed bond buys to finish, greenback and global stocks on radar ==

Fed’s Fisher warns could vote to stop bond buying

WASHINGTON (Reuters) – A senior U.S. Federal Reserve official warned on Monday that he would vote to scale back or stop the central bank’s $600 billion bond-buying program if it proves to be “demonstrably counterproductive.”

Dallas Federal Reserve Bank President Richard Fisher, who has repeatedly said he would not support any more bond buying after the program ends in June, said he was doubtful the purchases were doing much good.

“I remain doubtful enough as to its efficacy that if at any time between now and June, it should prove demonstrably counterproductive, I will vote to curtail or perhaps discontinue it,” Fisher said in remarks prepared for delivery to an Institute of International Bankers’ conference in Washington.

“The liquidity tanks are full, if not brimming over. The Fed has done its job,” he said.

The Fed launched its bond buying program in November to help an economic recovery that was struggling with high unemployment after the worst recession since the 1930s.

But since then, the economy has shown signs of strengthening with the jobless rate falling to a nearly two-year low of 8.9 percent in February.

Fed officials are due to meet March 15 to discuss the bond purchase program. In January, Fisher voted with the rest of the central bank’s policy-setting Federal Open Market Committee to continue it.

In comments to the bankers’ conference, Fisher said he did not feel that further monetary accommodation would help put more Americans back to work.

“It might well retard job creation, should it give rise to inflationary expectations,” he said, adding that perhaps the Fed’s policy has compromised the central bank by implying it is “a pliant accomplice to Congress’ and the executive branch’s fiscal misfeasance.”

== How About U.S dollar ? ==

Stretching out Treasury purchases past the end of June while reducing the monthly amount would help bond dealers adjust to the Fed’s withdrawal from the market, said Lou Crandall, chief US economist at Wrightson ICAP in Jersey City, N.J

NEW YORK – The Federal Reserve’s $US600 billion bond purchase program will be completed as planned, top Fed officials signalled, though they saw heightened economic uncertainty from unrest in the Middle East.

US central bank officials from Atlanta, Chicago and Dallas said they were keeping an eye on the risk higher oil prices could feed through into broader inflation, as well as their potential to hurt growth.

Atlanta Fed President Dennis Lockhart said he would not rule out more bond buys if the recovery dwindles. Dallas Fed President Richard Fisher said he would vote to end the program early if higher oil prices fed into broader inflation.

The program, announced in November to bolster a fragile economic recovery, is due to end in June. Since it began there have been signs the recovery is picking up steam.

Mr Lockhart, a policy centrist, said he was more concerned about the risk to growth from the oil price rise. He said he would be “very cautious” about increasing the size of the purchase program.

“Given the emergence of new risks, however, I prefer a posture of flexibility,” Mr Lockhart said.

He expected overall price pressures to remain subdued and warned it is too early to “declare a jobs recovery as firmly established”.

Mr Fisher, an inflation hawk, said he “fully expected” the $US600 billion program to “run its course.”

Mr Fisher told an international bankers’ conference he would vote to curtail or stop the program, however, if it proves to be “demonstrably counterproductive.”

The Fed meets on March 15 for its policy-setting meeting, at which it is expected to reaffirm its purchase plan. Fisher is a voter on monetary policy this year, Mr Lockhart is not.

In a CNBC interview, Chicago Fed Bank President Charles Evans said the Fed was closely watching rising oil prices, adding that they were “obviously” a headwind for growth.

Revolutions beginning in Tunisia and Egypt have spread to other countries in the region, including Libya and Bahrain. This has pushed the price of oil above $US100 a barrel, complicating the Fed’s objective of stimulating economic growth while keeping prices under control.

That said, Mr Evans pointed to the improving job market and said he expected economic growth of four per cent this year and next. He called the size of the purchase program “good”.

“I continue to think the hurdle is pretty high for altering our currently announced” program, Mr Evans, seen as a monetary policy dove and one of the most outspoken proponents for quantitative easing, said. Mr Evans does not have a vote on monetary policy this year.

Mr Fisher said the question will be whether the oil price rise is sustained.

“It is really a question of how that works its way through,” he said. “We have already seen very high gasoline prices. That’s one of the ways that it most affects the consumer.”

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February 25, 2011

Fed’s Bullard says it’s time to debate completing QE2

Filed under: Uncategorized — bigcapital @ 7:52 am
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Fed’s Bullard says it’s time to debate completing QE2

Friday, February 25, 2011 – http://marketpin.blogspot.com/

BOWLING GREEN, Kentucky (Market News) – A senior U.S. Federal Reserve official said on Thursday he thinks it is time to consider tapering off or scaling back a $600 billion bond-buying program because of an improved economic outlook.

“The natural debate now is whether to complete the program or to taper off to a somewhat lower level of assets,” St. Louis Federal Reserve President James Bullard said at a Chamber of Commerce breakfast held at Western Kentucky University.

Bullard said that he expects the topic to be discussed at a Fed meeting in March. He said he would be ready to scale back the program then.

“If it was just me, I would make small changes to account for the fact that the outlook is better than it was at the time of the November decision,” he told reporters after his speech.

Bullard, an academic economist, is not a voting member this year of the panel that sets interest-rate policy. He is seen as a centrist on the spectrum of Fed officials, which ranges from opponents of aggressive actions to support growth to advocates of accommodative policies at the other.

The Fed launched its bond buying program in November to buttress a weak recovery, struggling with high unemployment after the worst recession since the Great Depression of the 1930s.

The purchases are due to end midyear, and the Fed at its most recent policy meeting showed no sign as a body of backing away, although several policymakers have questioned the need for or the efficacy of the program.

Minutes of the Fed’s January meeting showed a few officials wondering whether data showing a strong recovery would make it appropriate to consider reducing the pace or overall size of the program.

But other officials at the meeting said the outlook was unlikely to improve dramatically enough to justify any changes. There were no dissents from the Fed policy at that meeting.

Despite his confidence in the rebound, Bullard said that events in the Middle East and lingering worries about European government fiscal soundness plague the outlook.

“We’ve got plenty of concerns out there about supply developments in oil markets, and you’ve still got brewing issues in Europe with respect to their sovereign debt crisis,” he said. “But I am saying that looking at the outlook today, it’s better than it was in November.”

Bullard said that despite his rosier outlook, further easing could never be ruled out. markets-stocks

The bond purchases are the Fed’s second round of quantitative easing, dubbed QE2. Bullard said it has been an effective tool when interest rates are near zero.

“Real interest rates declined, market expectations rose, the dollar depreciated and equity prices rose,” he said.

The Fed cut short-term interest rates close to zero in December 2008.

Bullard said a jump in food and energy costs around the world could impact U.S. prices.

“Perhaps global inflation will drive U.S. prices higher or cause other problems,” he said.

U.S. inflation is near historic lows and Fed officials have until recently been worried that the U.S. economy could slip into an outright deflationary spiral. Bullard said he believes the disinflation trend has bottomed.

“Inflation expectations are higher, which I think was a success of QE2 and if we do too much and don’t pull back in time, then we can get more inflation than we intended,” he said.

Bullard said adopting an explicit inflation target would be a better way of conducting monetary policy.

Friday, February 25, 2011 – http://marketpin.blogspot.com/

February 23, 2011

Inflation Building, Fed Should Back Off: LaVorgna

Filed under: Uncategorized — bigcapital @ 12:22 am
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Inflation Building, Fed Should Back Off: LaVorgna

As government economists and Fed apologists continue to dismiss inflation pressures, the fear that easy money and commodity pressures are about to come home to roost is building.

While Michael Pento at Euro Pacific Capital and a handful of others have been pounding the table about inflation ever since the Federal Reserve began quantitative easing, the sentiment is beginning to spread.

The latest on board is Joe LaVorgna, chief US economist at Deutsche Bank, who warns in a note sent to clients Friday that “inflation pressures are inflating.”

The threat is two-pronged: On one hand this week’s producer and consumer price numbers show pressures are building in the crude, or initial, price pipeline that will spread to intermediate and finished products in the months ahead.

On the other hand is “energy inflation contagion,” in which surging prices in that space “have shown a significant capacity to breed inflation contagion among related categories and have destabilized inflation expectations.”

Taking both threats into consideration, LaVorgna posits that the Fed should reconsider completing the entire $600 billion of Treasury buys it has planned for the second leg of QE.

Unless the brakes are put on, LaVorgna argues that core finished PPI prices will increase at an annualized 4 percent rate, and he concedes that if his calculations are wrong they are on the low side.

Finally, he warns against the pervasive mindset that commodity price increases will not cause so-called “pass-through” costs into the broader economy. The rise in CPI and PPI comes as manufacturing activity and capacity are rising, as opposed to the last bout of commodity-induced inflation when the economy was shrinking.

An excerpt from the LaVorgna note:

“We believe the rise in commodity prices is significant, because it is occurring alongside robust factory activity and a general strengthening in underlying domestic demand—a crucial difference from the 2008 run-up in commodities, when the factory sector was shrinking and demand was slowing. Therefore, monetary policymakers should be cognizant of the pipeline pressure brewing in the PPI.

“The risk is that an overstay of aggressively accommodative monetary policy could lead to even larger gains in retail goods prices down the road—the Catch 22 of Fed folks worried that higher commodities will crimp demand. Rather it is ample demand that is pushing commodities higher. Consequently, as long as monetary policy remains extraordinarily accommodative, thereby further boosting demand, we expect these trends to persist if not become more durable.”

.

Dollar May Appreciate to 1.0067 Swiss Francs

Dollar May Appreciate to 1.0067 Swiss Francs: Technical Analysis

The dollar may reverse last week’s decline and rally 6 percent to its December high against the Swiss franc, Commerzbank AG said, citing technical indicators.

“Longer-term, we target 1.0067” Swiss francs per dollar, Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank in London, wrote in a report today. The exchange rate reached that level on Dec. 1.

The dollar strengthened 0.3 percent to 94.78 Swiss centimes at 12:30 p.m. today in London. The greenback slumped almost 3 percent against the franc last week and sank to 94.25 earlier today, the weakest level since Feb. 3, Bloomberg data show.

“We would allow the slide to continue to 0.9425, from where we would favor recovery,” Jones wrote. That’s the 78.6 percent Fibonacci retracement of the rally seen in February, Jones wrote.

The dollar may test resistance at around 97.74 centimes, she said. Those levels represent the 61.8 percent Fibonacci retracement of the move down from December and the high from Jan. 11, according to data compiled by Bloomberg.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Resistance and support levels are areas on a chart where technical analysts anticipate orders to sell or buy, respectively, a currency and its related instruments

Fed’s Fisher Says More Stimulus Unnecessary

Fed’s Fisher Says More Stimulus Unnecessary

(RTTNews) – A top Federal Reserve official declared on Thursday that we would not back more monetary easing when the Fed’s $600 billion quantitative easing program winds to a close.

Richard Fisher, President of the Federal Reserve Bank of Dallas, was quoted as saying that he could not foresee any circumstances that would warrant more stimulus and suggested that the central bank should turn its attention to unwinding support.

Fisher’s comments contrast with those made by the Chicago Fed President Charles Evans, who backed the Fed’s extremely loose monetary policy and assured that it had the tools to tighten quickly if needed should inflation rise faster than expected

February 3, 2011

Euro Is Still Not Out Of Dangers Zone

Filed under: Uncategorized — bigcapital @ 5:43 am
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Euro Is Still Not Out Of Dangers Zone

February 02, 2011 – http://marketpin.blogspot.com/

 

NEW YORK (Market News)– The European Central Bank has become more political since its decision to buy euro-zone government bonds last year, and is therefore unlikely to raise interest rates early even if inflation surges, according to Commerzbank chief economist Joerg Kraemer. “Even if inflation moves towards 3%, the ECB is still unlikely to raise rates until the fourth quarter [of this year]” Kraemer says

EUR/USD is “teetering” lower on profit-taking, strong U.S. data and concerns about further turmoil in Egypt, says HiFX senior trader Stuart Ive. “The markets are still preoccupied with Egypt to a degree especially after (Egypt’s President) Mubarak supporters protested after his speech yesterday.”

The euro fell from the near three-month high against the dollar it reached earlier Wednesday, as social unrest in Egypt combined with the euro zone’s ongoing debt crisis to inject some caution into bullish traders.

Boiling instability in Egypt tempered a revival in an appetite for riskier investments, as violence erupted between antigovernment forces and supporters of embattled President Hosni Mubarak. Nervous investors bought dollars as a haven, pulling the U.S. currency up from its weakest level against the euro since early November.

Developments in Europe’s debt crisis also doused some of the market’s enthusiasm for the euro, reminding traders that the euro zone’s woes have not disappeared.

German Deputy Finance Minister Joerg Asmussen rejected the idea of creating a euro-zone bond, reiterating that any revisions to the existing euro-zone fiscal rescue facility will likely require fiscal concessions from euro-zone governments. Elsewhere, ratings agency Standard & Poor’s lowered its assessment of six Irish banks and placed them on watch for further downgrades.

“People are watching with one eye what’s going on in the streets in Cairo, and it’s causing second thoughts about” taking the euro higher, said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J.

Risk aversion coalesced with fears that the process for resolving Europe’s debt issues could turn “sloppy,” Dolan added. “There’s a question of some further [euro] weakness as the move-up stalls and some people head for the exits.”

The euro slipped to new U.S. session lows underneath $1.3780, below its offshore trading high at $1.3862. Against the yen, the euro purchased Y112.72, slightly higher on the day. Meanwhile, the dollar bought Y81.80, up slightly from Tuesday.

Source: http://marketpin.blogspot.com/

February 02, 2011

February 2, 2011

Bernanke: The Dollar System Is Flawed

Filed under: Uncategorized — bigcapital @ 9:18 am
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Bernanke: The Dollar System Is Flawed

Federal Reserve Chairman Ben Bernanke’s speech in Frankfurt may be one of the most important and underreported events since America abandoned the gold standard. In it, he said the dollar standard was flawed and that America’s trade deficit was imperiling America.

 “[I]t would be desirable for the global community, over time, to devise [a new] international monetary system,” he said.

 Never before has a Fed chairman made such an admission. Never before has one ever disparaged his own currency in such a way.

“The speech was a radical departure from the status quo and a major signal for a looming policy change. It means that trade war is virtually guaranteed and the dollar will soon be devalued. Dramatic global economic upheaval is on the way. “

 On November 19, Ben Bernanke told a room full of bankers in Frankfurt, Germany, that the world’s sense of common purpose had waned. Tensions among nations over economic policies are intensifying, he said. It threatens the world’s ability to find a solution.

 U.S. unemployment rates are high, he told the gathering, and given the slow pace of economic growth, likely to remain so. Approximately 8.5 million jobs have been lost so far, and when you take into account population growth, the size of the employment gap is even larger, he said.

 Unemployment may get even worse before it gets better.

 “In sum, on its current economic trajectory the United Sates runs the risk of seeing millions of workers unemployed or underemployed for many years,” lamented Bernanke. “As a society, we should find that outcome unacceptable.”

 In an effort to win European allies, America’s most powerful banker then went on the attack—blaming China for causing much of the economic and trade imbalances destabilizing the current dollar-centric economic order and threatening the world’s economy.

 China is manipulating the market to keep its currency undervalued, he charged. This has led to imbalances.

 Each month China sells tens of billions of dollars more worth of goods and services to America than it purchases in return. Many American economists claim this is because of China’s undervalued currency, which makes Chinese goods less expensive in America and American goods more expensive in China.

 Coupled with China’s low-wage, low-taxation, low-regulatory, non-union environment, resulting in the relocation of millions of American jobs overseas, China has received a huge economic boost at America’s expense.

 This is a primary reason nations like China have fully recovered from the recession while America is still mired in it, noted Bernanke. America can no longer afford to let China drain the U.S. economy.

But what to do about it?

 “As currently constituted, the international monetary system has a structural flaw,” said America’s chief banker. The dollar system is broken. “It lacks a mechanism, market based or otherwise, to induce needed adjustments by surplus countries, which can result in persistent imbalances” (emphasis mine throughout).

“In the meantime, without such a system in place, the countries of the world must recognize their collective responsibility for bringing about the rebalancing required to preserve global economic stability and prosperity.”

 Thus Bernanke told his German audience to prepare for “market-based or otherwise” unorthodox—even radical—action by the Fed to try and force China to revalue its currency and rebalance the global economy.

 The “flaw” has been declared. But what is Bernanke going to do?

 “Bernanke is alerting the world to the most important shift in U.S. trade policy in more than a generation,” writes economic analyst and author Richard Duncan. “The world has been put on notice that the United States will take steps to correct this defect and the destabilizing trade imbalances it permits.”

 “If the flaw cannot be corrected through international coordination, then unilateral actions by the United Sates should be anticipated,” Duncan warns.

 And if history is a guide, that means tariffs and trade duties.

 The first major shots of trade war may be about to be fired—and the Fed has just given its blessing. If you look back on the 1930s and that disastrous time period, protectionism is lethally contagious and predictable. Global trade and commerce will contract. Import prices will rise. Unemployment will skyrocket. And that is just for starters.

 During the Great Depression, America was not burdened under record debt. The economy entered that age of trade warfare from a position of strength, and still the economy got ruthlessly battered.

 A trade-war-induced depression today would potentially be far worse—and not just because the United States has become the greatest debtor nation in all history, but because this time, the credibility of America’s government, its central bank and its currency, are all now in question.

 Besides tariffs, Mr. Bernanke’s declaration that the international monetary system is broken also means the Fed will engage in as much “quantitative easing” as necessary to compensate for what he sees as its “structural flaws.”

 During the G-20 meeting in South Korea two weeks ago, President Obama and Treasury Secretary Timothy Geithner were forced to defend the Federal Reserve’s decision to print dollars to finance government spending and depreciate the value of the dollar.

 Foreign nations saw it as a way for America to renege on its debts.

 Bernanke’s Frankfurt defense of the Fed’s “quantitative easing” will do little to reverse that sentiment. “Fully aware of the important role that the dollar plays in the international monetary and financial system, the [Fed] believes that the best way to continue to deliver the strong economic fundamentals that underpin the value of the dollar, as well as to support the global recovery, is through policies that lead to a resumption of robust growth in the context of price stability in the United States,” Bernanke said.

 In order for America to support the value of the dollar, it will devalue it, said Bernanke. The incongruity is palpable—and surely wasn’t lost on America’s bond holders. Every time the Federal Reserve hits the “print” button, creating money out of thin air, it devalues the dollars in existence. America’s lenders (of which the Chinese are the largest) have been put on notice that they will be paid back in depreciated dollars.

 Be prepared for more quantitative easing—or, as it has become known overseas, quantitative fleecing.

 And be prepared for the Federal Reserve’s antics to succeed all too well.

 Foreign nations, and America’s foreign creditors, grow more dissatisfied with the dollar as the world’s reserve currency every day. The move to adopt a new reserve currency system is gaining momentum. When this happens, the Federal Reserve will get a whole lot more international cooperation in meeting its goals than it could have ever wanted.

 The Fed won’t be trying to devalue the dollar anymore—it will be doing everything it can to prop it up.

 Unfortunately, with faith in the dollar broken, the government unable to borrow money and a global trade war ravaging the U.S. economy, America will pine for the structurally “flawed” but comparatively good old days.

 “The speech was a radical departure from the status quo and a major signal for a looming policy change. It means that trade war is virtually guaranteed and the dollar will soon be devalued. Dramatic global economic upheaval is on the way.”

– MARKET TALK –

January 8, 2011

Surprise jobs surge boosts U.S economic outlook 2011

Filed under: Uncategorized — bigcapital @ 2:17 am
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Surprise jobs surge boosts U.S economic outlook 2011

(Reuters) – A surprise surge in private-sector employment last month to its highest level on record provided the most bullish signal in months that the U.S. economy is on the mend.

Private employers added 297,000 jobs in December, triple the median estimate by economists and up from the gain of 92,000 in November, an ADP Employer Services report, whose data goes back to 2000, showed on Wednesday.

The report undercut the prices of the U.S. Treasury securities, and helped the U.S. dollar gain against the yen and the euro. U.S. stocks opened lower though they did pare losses after the jobs news.

“Sometimes numbers come as bolts from the blue; this is one of them,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

“Nothing in any other indicators of the state of the labor market last month — jobless claims, help wanted, surveys — suggested anything like this was remotely likely.”

ISM’s index on the services sector also came in better than analysts expected, though the index’s employment component was a touch weak. Read about ISM services index.

“The data today still leaves an impression that a U.S. upside growth surprise in 2011 needs fresh assessment,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank.

Macroeconomic Advisers Chairman Joel Prakken noted seasonal factors may have boosted the December numbers but said growth in employment was “comfortably into positive territory and seems to be accelerating.”

http://marketpin.blogspot.com/

January 1, 2011

IMF Economist Sees Two-Speed Recovery In 2011

IMF Economist Sees Two-Speed Recovery In 2011

(RTTNews) – A two-speed economic recovery will be extended into 2011 with rich nations facing weak growth and emerging markets moving ahead with strong recovery, according to IMF’s chief economist Olivier Blanchard.

In an interview to the Fund’s online magazine, IMF survey, Blanchard noted that along with their strong rebound, emerging economies will be facing tough challenges like managing possible overheating and capital flows. At the same time, growth in advanced economies will remain low, barely enough to bring down unemployment.

“The two-speed recovery, low in advanced countries, fast in emerging market countries, is striking and its features are increasingly stark. They will probably dominate 2011, and beyond,” Blanchard said.

He also warned that countries will be risking a healthy recovery in the absence of continued focus on rebalancing their economies in the coming year, including structural measures and exchange rate adjustments.

Countries with excessive budget deficit must rely more on external demand or exports. And, by symmetry, surplus countries, many of them emerging markets, must do the reverse, shift from external demand to domestic demand and reduce their dependence on exports, the economist noted.

Regarding the economic prospects of low-income countries, he said recovery in trade and high commodity prices have bettered economic conditions in these nations. Private domestic demand also remained quite strong

Source: http://marketpin.blogspot.com/

December 31, 2010

Estonia Joins Euro Club Currency 2011

Filed under: Uncategorized — bigcapital @ 10:21 am
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Estonia Joins Euro Club Currency 2011

via Bloomberg.com – Dec 31, 2010

Estonia Joins Euro Club as Currency Expands East Into Former Soviet Union

Estonia tomorrow becomes the first former Soviet republic to join the euro, putting at least a temporary cap on the currency bloc’s expansion as the sovereign debt crisis ripples through Europe.

Wedged between Russia and Latvia on the Baltic Sea, Estonia will at midnight become the 17th country to switch to the currency. Gross domestic product of 14 billion euros ($19 billion) makes it the second smallest euro economy after Malta.

As Europe grapples with the financial crisis, Estonia is likely to be the last addition to the euro club for several years. Lithuania and Latvia, the next in line, are aiming for 2014 and bigger eastern countries have shied away from setting target dates.

“The euro is still generally seen as a positive for the applicant countries as long as the conversion rate is somewhat competitive,” Elisabeth Gruie, an emerging-markets strategist at BNP Paribas SA in London, said in an email. High deficits are keeping Poland out and an “inner desire for independence” is the obstacle in the Czech Republic, she said.

Debt estimated by the European Union at 8 percent of GDP in 2010 will make Estonia the fiscally soundest country in a currency bloc plagued by budget woes that forced Greece and Ireland to fall back on European and International Monetary Fund aid.

Confidence in Euro

“It is a sign of the confidence of Estonia toward the euro, despite the current difficulties, which will be a positive signal to the markets,” Joseph Daul of France, floor leader of center-right parties in the European Parliament, said in an e- mailed statement.

Estonia’s central bank chief, Andres Lipstok, 53, will join the European Central Bank’s policy-setting council, taking part in his first interest-rate vote on Jan. 13 in Frankfurt.

Some 85 million euro coins featuring a map of Estonia and 12 million banknotes go into circulation tomorrow, according to the central bank, starting a two-week phase out of the national currency, the kroon. One euro buys 15.6466 krooni.

The 1.3 million Estonians have little experience of monetary autonomy. In June 1992, less than a year after regaining independence from the Soviet Union, Estonia shifted from the Russian ruble to a national currency that it immediately pegged to the German mark. The exchange rate was locked to the euro when the first 11 countries began using it in 1999.

Source: http://marketpin.blogspot.com/

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