The euro slipped against a stronger dollar, falling over 1 percent after the European Central Bank decided to keep Greek banks propped up with emergency funds, but made it harder for them to access the funds.
The euro fell around 1.2 percent against the dollar at $1.0929, beyond a five-week low, after the ECB confirmed that is was maintaining the “liquidity assistance” to Greek banks at 89 billion euros. Meanwhile the dollar rallied to trade 0.85 percent against a basket of currencies to levels not seen since the start of June.
While the ECB keep the loan amount to Greek banks at the same level, it also tightened the terms of the liquidity on offer by adjusting the “haircut” on the collateral required
Currently banks have to use assets as collateral in return for liquidity from Greece’s central bank. Those assets are not accepted at their face value, but a haircut – the value of which is unknown — is applied to them. In return, Greek banks get liquidity from the Bank of Greece, which is provided by the ELA (emergency liquidity assistance).