Some rates on short-term money that banks lend each other edged up on Friday while dollar rates stayed at record lows, as traders looked ahead to central bank policy decisions and statements next week. The Federal Reserve, the European Central Bank, the Bank of England all meet next week and investors will be looking for hints on when and how they might start a gradual withdrawal of monetary stimulus.
Market participants generally feel central banks will remain cautious and keep the extraordinary stimulus measures as long as a global economic recovery remains fragile. "The bottom line is the markets are getting ahead of themselves expecting to see a very definitive exit strategy outlined, which we're just not going to get," said Mark Schofield, rates strategist at Citi in London. "The removal of policy will still be slower than anything we've ever seen."
The one-month New York Funding Rate (NYFR) was fixed at 0.245 percent, down from 0.2469 percent Thursday, said ICAP. The three-month NYFR was fixed at 0.2925 percent, down from 0.2956 percent Thursday. That compared with three-month dollar Libor offered rate of 0.28063 percent, a record low for the fifth straight day on talk the Fed might refine language on monetary policy to hint at a gradual withdrawal of monetary stimulus.
But John Spinello, chief fixed-income technical analyst at Jefferies & Co in New York, said the Fed was likely to leave its options open and "keep rates on hold for an extended period while acknowledging recovery." Three-month euro Libor rates edged up from record lows to 0.67188 percent while equivalent sterling rates also inched up.
The benchmark euro rate snapped a four-day decline a day after an ECB Governing Council member hinted at how the bank might stagger the withdrawal of its extra liquidity measures, targeting the long-term refinancing operations first. Still, interest rates are expected to remain low and central banks are seen funding the banking system generously for some time to come. "The most that the hawks at the Fed can hope to achieve at this week's two-day meeting, which concludes on Wednesday, is to force a few modest cosmetic changes to the language in the accompanying statement," said economists at Capital Economics in London. "More generally, interest rates will remain at near-zero for the foreseeable future."
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