The cost of dollar, euro and sterling funds banks lend to each other for three-month periods reached fresh lows on Thursday, but the Bank of England surprised markets by leaving its bond-buying operations unchanged.
The UK's central bank left short-term interest rates at a historic low of 0.5 percent, as expected, but surprised markets by holding its quantitative easing program to 125 billion pounds, stirring speculation it might end the program when the economy begins to recover.
At the start of the European session, the three-month sterling deposit rate was already indicated sharply lower in a range of 0.50 to 0.90 percent versus 0.81 to 1.01 percent in early trading on Wednesday. The fixings also tested market psychology. The three-month euro Libor rate fell below 1.0 percent for the first time and the equivalent dollar Libor rate homed in on the 0.5 percent area.
Meanwhile, Federal Reserve data showed that in the week ended July 8 the size of the US commercial paper market, a vital source of short-term funding for daily operations at many companies, held steady at $1.136 trillion, the same as the previous week.
In New York, three-month borrowing rates for US banks, according to ICAP's New York Funding Rate, were 0.5473 percent, down from the previous session's 0.6044 percent. As usual, that was above the 3-month dollar-denominated London interbank offered rate last fixed at 0.5100 percent.
ICAP's one-month NYFR eased to 0.3091 percent from the previous session's 0.3261 percent. That compared with a one-month dollar-denominated Libor rate last fixed at 0.29625 percent. But a poll of economists published by Reuters on Thursday indicated that while the cost of three-month money would remain steady for much of the year across all monetary regions, eurozone Libor rates may back up. The survey found the euro Libor rate could hit 1.10 percent in three months, 1.20 percent by year end and 1.30 percent in 12 months.
The three-month sterling London interbank offered rate (Libor) fell to 1.06250 percent, according to the latest daily fixing from the British Bankers' Association. On Thursday, spreads of three-month London interbank offered rates over Overnight Index Swap rates for sterling and dollars narrowed slightly while the equivalent spread for euros widened.
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