Dollar Libor up

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. US 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.
-- Euro Libor hits record low
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 US currency. That compares with levels last week of a little over 0.15 percent.
Rates were also pushed higher on Monday due to the US 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. 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 three-month euro 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.