Money markets eurodollars gain as ecb disappoints

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Aug 2 U.S. Eurodollar futures contracts gained on Thursday after the European Central Bank disappointed some investors by taking no new immediate action to contain the region's debt crisis, increasing demand for safe haven U.S. debt. Eurodollar price gains were tempered, however, by expectations that the central bank is likely to take more forceful action to contain the region's debt crisis when it next meets in September. ECB President Mario Draghi said on Thursday that any intervention to curb Italy and Spain's spiraling debt costs would come at the earliest ion September and said that euro zone governments must act first."The ECB didn't really deliver any formal actions, just some promises," said Mike Lin, director or U.S. funding at TD Securities in New York.

Demand for safe-haven U.S. Treasuries had declined since last Thursday, when Draghi fanned expectations for more dramatic action by saying that the ECB would do "whatever it takes" to support the euro. The lack of action on Thursday boosted demand for U.S. Treasuries and sent longer-dated Eurodollars prices higher.

Gains were limited however, with investors now focused on whether the ECB will launch new bond purchases at next month's meeting."I'm surprised we haven't had more of a reaction," said TD's Lin. "Maybe it's the fact that there does seem like there's a bit of a promise that by next meeting something might happen, and maybe that's what's keeping markets from being too disappointed."

Separately, the New York Federal Reserve said on Thursday that it will begin testing the process for executing reverse repurchase transactions with primary dealers to ensure the system is operationally ready. The tests do not reflect a change in the Fed's monetary policy. The Fed has not conducted a reverse repo since 2008, and since then it has added six primary dealers to its roster and there have been several system changes, the New York Fed said in a release. The regional bank last month unveiled reforms for the $1.8 trillion triparty repo market that will force banks to reduce their reliance on the short-term loans and lessen the risks that they pose to the financial system.