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MONEY MARKETS-Dollar Libor up on U.S. liquidity cut view
Tue, 16th Mar 2010 13:54
By Kirsten Donovan and George Matlock
LONDON, March 16 (Reuters) - The interbank cost of obtaining
dollars rose on Tuesday, with an expected reduction in the
number of Federal Reserve liquidity programmes one factor
increasing demand for the greenback.
U.S. dollar Libor was at a 3-1/2 month high,
with overnight rates at their highest since early
September ahead of a policy meeting later in the day where the
Fed is likely to signal that its purchases of long-term
securities will end as scheduled at the end of March.
Brokers said bids for overnight dollars had risen to around
0.25 percent, with the few offers seen coming in around the 0.30
percent level as banks hoarded the U.S. currency. That compares
with levels last week of a little over 0.15 percent.
Rates were also pushed higher on Monday due to the U.S.
corporate tax day.
'The Fed funds rate has risen today to 0.2 percent, the
highest it has been since July. This in turn has squeezed the
OIS spread and pushed Libor higher,' said Lena Komileva, head of
G7 market economics at Tullet Prebon in London.
The Fed effective rate -- a weighted average price of
overnight trades, fixed on Monday at 0.21 percent, and was seen
easing only marginally from that on Tuesday.
The Fed last week conducted its last funding operation under
the Term Auction Facility (TAF).
Traders said that although the facility was no longer being
used much towards the end, its withdrawal was probably having a
psychological effect.
U.S. banks with European operations were reported to be
using the swaps market to obtain dollars, which along with
European banks seeking overnight dollars, pushed up the cost of
the dollar leg of the trade.
Forward foreign exchange rates also reflected demand for
dollars.
The dollar overnight Libor rate fixed three
basis points higher at 0.22413 percent, with the benchmark
three-month rate at 0.26088 percent.
The three-month dollar Libor/OIS spread was at 4 bps due to
the rise in OIS, compared with 7 bps at the start of the year.
That compression implied further upside for Libor in the short
run, said Komileva.
The Fed is expected to repeat its promise to keep borrowing
costs exceptionally low for an 'extended period'.
That phrase -- which the Fed has used in every statement
announcing its monetary policy decisions since March 2009 --
could see its days numbered, although this is unlikely at this
meeting, as the economic recovery broadens and builds.
A policy statement is expected at around 1815 GMT.
EURO LIBOR HITS FRESH LOW
Although the economic and credit situation is improving
in
Europe -- illustrated by a stronger German ZEW investor
sentiment survey on Tuesday -- liquidity from the European
Central Bank continues to put downward pressure on Libor.
The three-month Libor hit a record low of
0.59125 percent at the Tuesday fixing by the British Bankers'
Association.
Earlier, the fixing of Euribor in Frankfurt saw the rate
hold at a record low of 0.646 percent.
'The worst of the crisis is becoming a more distant memory
day by day, yet the market remains flush with liquidity. This is
helping to keep Libor rates low,' said Peter Chatwell, a market
analyst at Credit Agricole CIB in London.
Keywords: MARKETS MONEY
(george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508, editing by Nigel Stephenson)
COPYRIGHT
Copyright Thomson Reuters 2010. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, March 16 (Reuters) - The interbank cost of obtaining
dollars rose on Tuesday, with an expected reduction in the
number of Federal Reserve liquidity programmes one factor
increasing demand for the greenback.
U.S. dollar Libor was at a 3-1/2 month high,
with overnight rates at their highest since early
September ahead of a policy meeting later in the day where the
Fed is likely to signal that its purchases of long-term
securities will end as scheduled at the end of March.
Brokers said bids for overnight dollars had risen to around
0.25 percent, with the few offers seen coming in around the 0.30
percent level as banks hoarded the U.S. currency. That compares
with levels last week of a little over 0.15 percent.
Rates were also pushed higher on Monday due to the U.S.
corporate tax day.
'The Fed funds rate has risen today to 0.2 percent, the
highest it has been since July. This in turn has squeezed the
OIS spread and pushed Libor higher,' said Lena Komileva, head of
G7 market economics at Tullet Prebon in London.
The Fed effective rate -- a weighted average price of
overnight trades, fixed on Monday at 0.21 percent, and was seen
easing only marginally from that on Tuesday.
The Fed last week conducted its last funding operation under
the Term Auction Facility (TAF).
Traders said that although the facility was no longer being
used much towards the end, its withdrawal was probably having a
psychological effect.
U.S. banks with European operations were reported to be
using the swaps market to obtain dollars, which along with
European banks seeking overnight dollars, pushed up the cost of
the dollar leg of the trade.
Forward foreign exchange rates also reflected demand for
dollars.
The dollar overnight Libor rate fixed three
basis points higher at 0.22413 percent, with the benchmark
three-month rate at 0.26088 percent.
The three-month dollar Libor/OIS spread was at 4 bps due to
the rise in OIS, compared with 7 bps at the start of the year.
That compression implied further upside for Libor in the short
run, said Komileva.
The Fed is expected to repeat its promise to keep borrowing
costs exceptionally low for an 'extended period'.
That phrase -- which the Fed has used in every statement
announcing its monetary policy decisions since March 2009 --
could see its days numbered, although this is unlikely at this
meeting, as the economic recovery broadens and builds.
A policy statement is expected at around 1815 GMT.
EURO LIBOR HITS FRESH LOW
Although the economic and credit situation is improving
Europe -- illustrated by a stronger German ZEW investor
sentiment survey on Tuesday -- liquidity from the European
Central Bank continues to put downward pressure on Libor.
The three-month Libor hit a record low of
0.59125 percent at the Tuesday fixing by the British Bankers'
Association.
Earlier, the fixing of Euribor in Frankfurt saw the rate
hold at a record low of 0.646 percent.
'The worst of the crisis is becoming a more distant memory
day by day, yet the market remains flush with liquidity. This is
helping to keep Libor rates low,' said Peter Chatwell, a market
analyst at Credit Agricole CIB in London.
Keywords: MARKETS MONEY
(george.matlock@reuters.com; Reuters Messaging: george.matlock.reuters.com@reuters.net; +44 20 7542 2508, editing by Nigel Stephenson)
COPYRIGHT
Copyright Thomson Reuters 2010. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
