Dollar Libor hits record low

Interest rates banks charge each other for three-month dollars fell to a record low on Tuesday as Federal Reserve policymakers gathered for a two-day interest-rate policy meeting. The Fed is widely expected to stick to its near zero rate policy to help the US economic recovery stay on track.
The Bank of England and the European Central Bank are expected to follow the Fed's lead and leave their rock-bottom rates alone. With their economies still vulnerable, analysts said the three central banks are in no hurry to quickly drain the flood of cash they pumped into the banking system to combat last year's credit crisis.
"All things point to no change tomorrow," said Christian Cooper, an interest rate strategist at RBC Capital Markets in New York. The Fed is expected to announce its decision about 2:15 pm (1915 GMT) on Wednesday. Its British and eurozone counterparts will announce their decisions early Thursday.
The low-rate expectations, together with a banking system awash in cash, sent the benchmark three-month London interbank offered rate for dollars to a record low of 0.27813 percent. The equivalent three-month euro rate crept up but remained near its all-time low at 0.67000 percent, and the sterling rate, while still low historically, also edged up to 0.59688 percent.
Libor-related spreads held steady, signalling confidence of the three major central banks making no rate moves. The spread between three-month dollar Libor and Overnight Indexed Swap rate - traders' expectations of the Fed's rate target - was unchanged at 14 basis points. Despite the prevalent view of the Fed's ultra-loose policy rolling into 2010, traders have hedged their bets - such as buying out-of-money put options - in case the Fed takes a more hawkish than expected tone in Wednesday's policy statement.
Furthermore, a safehaven bid for ultra-short US government debt has remained intense ahead of the Fed's policy statement. On Tuesday, the US Treasury sold $28 billion in one-month Treasury bills to strong demand. Several central banks have begun to tighten monetary policies in recent weeks in a bid to forestall inflation.