This afternoon, the euro dropped to a three-month low. The decline comes after the European Central Bank’s Benoit Coeure disclosed that a new round of cheap loans to Eurozone banks may be possible.
The board member of the ECB said that the economic slowdown of the bloc would be “stronger and broader” than what is expected and that the possibility of more multi-year loans was being negotiated.
In 2020, an earlier round of loans through its current Targeted Long-Term Refinancing Operation (TLTRO) must be paid back. It will leave some banks, particularly in Italy, facing a possible funding shortage.
The stocks of Eurozone banks rallied as a result of the remarks of Coeure. It gave weight to the speculation that the ECB was set to deploy some stimulus measures in order to counteract the slowdown that is observed in the bloc.
The Borsa Italiana index of banks rose by 3.9 percent. It is considered as its highest level since the start of December 2018.
However, the euro dropped to $1.1234, its lowest since the 12th of November. It has been able to recover some ground slightly to trade by 0.25 percent down.
In a statement that was made by Coeure in New York earlier today, he stated: “It is possible, we are discussing it, but we want to be sure that it serves a purpose.”
He added: “There might be scope for another TLTRO.” He also suggested that the path to inflation would be more shallow and the economic slowdown may be worse than expected.
The remarks of Coeure come amid a consistent spell of poor economic data that has plagued the European Union in the past months.
At the end of last year, Italy entered a recession, and Germany narrowly avoided joining it with a flat GDP growth in the final quarter of the year.