Short-term US interest rates eased and US rate-sensitive Euribor futures rallied, driving their implied rates sharply lower on Friday while the benchmark interbank lending rate for euros was set at a record low.
-- Benchmark euro Libor marks new low
-- Euribor futures rally across the 2011 strip
Worries about the fiscal health of some heavily indebted eurozone economies boosted risk appetite and prompted market players to push out expectations for the European Central Bank to tighten its ultra-loose monetary policy.
The US payrolls report, which reported 20,000 jobs lost in January but an unexpected drop in the unemployment rate to 9.7 percent from 10 percent in December, appeared to be a fairly neutral influence on the market.
Analysts took the view that the Federal Reserve would stick to its easy monetary policy amid an uneven US recovery.
"Everyone knows the Fed will be extraordinarily unwilling to hike rates until the unemployment rate starts to move lower, but I would not characterise this report as in any way strong," said Cary Leahey, economist at Decision Economics in New York. "On a scale of one to 10, it's still a three or four."
On Thursday, the ECB left interest rates unchanged at a record low of 1.0 percent and promised to lay out the next stage of its plans for a further pull-back of crisis measures when it meets next month.
The three-month euro Libor was set at an all-time low of 0.60125 percent and the equivalent rate for dollars was set slightly higher at 0.24969 percent, having retested the record low of 0.24875 percent at Thursday's fixing.
Three-month sterling Libor was a touch higher at 0.61969 percent, a day after the Bank of England put a hold on its unprecedented 200 billion pound asset-buying program for the first time in 11 months, but left the door open for more so-called quantitative easing if the economy relapsed.
Euribor futures rallied more than 10 ticks across the 2011 strip, taking their implied yields sharply lower.
"So far, what we see is that the sovereign crisis and the difficulty banks are in currently, which you can see in equity markets, are not affecting the (Libor) fixings," said Guillaume Baron, strategist at Societe Generale in Paris.
"There is still ample liquidity and everything looks under control, but we'll see." Highlighting that liquidity, latest data showed banks parked 217.7 billion euros at the ECB's overnight vault, up from 210.2 billion euros.
The massive liquidity major central banks have pumped into money markets to help banks cope with the financial crisis has dragged rates lower and kept the overnight Eonia rate and London interbank offered rates (Libor) pinned down.
The focus is on sovereign risks and not on banking sector risks for now, but worries about contagion lingered. ECB Governing Council member Erkki Liikanen said on Friday the central bank would pull back more of its extraordinary liquidity measures at next month's meeting.
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