AIRLINK 189.36 Increased By ▲ 1.33 (0.71%)
BOP 11.10 Decreased By ▼ -0.76 (-6.41%)
CNERGY 7.28 Decreased By ▼ -0.26 (-3.45%)
FCCL 36.65 Decreased By ▼ -1.14 (-3.02%)
FFL 14.95 Decreased By ▼ -0.29 (-1.9%)
FLYNG 26.19 Increased By ▲ 0.66 (2.59%)
HUBC 130.89 Increased By ▲ 0.74 (0.57%)
HUMNL 13.47 Decreased By ▼ -0.14 (-1.03%)
KEL 4.28 Decreased By ▼ -0.07 (-1.61%)
KOSM 6.08 Decreased By ▼ -0.09 (-1.46%)
MLCF 45.94 Increased By ▲ 0.26 (0.57%)
OGDC 201.86 Decreased By ▼ -4.57 (-2.21%)
PACE 6.12 Decreased By ▼ -0.26 (-4.08%)
PAEL 38.36 Decreased By ▼ -1.95 (-4.84%)
PIAHCLA 16.73 Decreased By ▼ -0.22 (-1.3%)
PIBTL 7.94 Decreased By ▼ -0.09 (-1.12%)
POWER 9.86 Decreased By ▼ -0.17 (-1.69%)
PPL 173.46 Decreased By ▼ -5.38 (-3.01%)
PRL 34.73 Decreased By ▼ -1.63 (-4.48%)
PTC 23.95 Decreased By ▼ -0.44 (-1.8%)
SEARL 101.74 Decreased By ▼ -1.42 (-1.38%)
SILK 1.07 No Change ▼ 0.00 (0%)
SSGC 32.70 Decreased By ▼ -3.54 (-9.77%)
SYM 17.93 Decreased By ▼ -0.30 (-1.65%)
TELE 8.14 Decreased By ▼ -0.24 (-2.86%)
TPLP 12.02 Decreased By ▼ -0.14 (-1.15%)
TRG 67.40 Increased By ▲ 0.07 (0.1%)
WAVESAPP 11.80 Decreased By ▼ -0.21 (-1.75%)
WTL 1.52 Decreased By ▼ -0.05 (-3.18%)
YOUW 3.90 Increased By ▲ 0.01 (0.26%)
BR100 11,819 Decreased By -87.9 (-0.74%)
BR30 35,000 Decreased By -554.1 (-1.56%)
KSE100 112,085 Decreased By -478.8 (-0.43%)
KSE30 34,946 Decreased By -148 (-0.42%)
Markets

Dollar borrowing costs drop to lowest in decade in FX swap markets

These moves indicate recent emergency actions by global central banks have managed to squelch a growing dollar shor
Published April 6, 2020
  • These moves indicate recent emergency actions by global central banks have managed to squelch a growing dollar shortage in these markets.
  • Dollar borrowing rates via the 3-month euro-dollar FX swap fell to a 12-year low of minus 65 bps, indicating that European borrowers are able to borrow greenback at a discount.

LONDON: Dollar borrowing costs in the foreign exchange swap markets retreated further on Monday, with swap rates against the euro and pound falling to their lowest levels in more than a decade.

These moves indicate recent emergency actions by global central banks have managed to squelch a growing dollar shortage in these markets.

Costs dropped after the US Federal Reserve stepped in, first renewing swap lines with major central banks, then extending similar facilities to other central banks, and finally establishing a new temporary 'repo' facility.

"Policies put in place to settle markets have created new distortions of their own," Natwest market strategists said in a note.

"Judging from cross-currency basis swaps, there has been a swing from an acute dollar shortage to an oversupply."

Dollar borrowing rates via the 3-month euro-dollar FX swap fell to a 12-year low of minus 65 bps, indicating that European borrowers are able to borrow greenback at a discount.

This rate had swung to a 2011 European crisis-era high of more than 150 bps two weeks earlier.

Similarly, borrowing costs against the pound in the 3-month sterling-dollar FX swap market also fell to a 12-year lows of minus 42 bps.

Three-month dollar-yen swaps also also fell its lowest level in eight years at minus 30 bps, according to Refinitiv data.

However the reversal in the currency swaps market was not reflected in other corners of the derivative markets with 2008, financial crisis era indicators such as FRA-OIS spreads, still stuck near multi-year highs, partly a reflection of a broad demand for dollars among companies.

Strategists at the Bank for International Settlements, an umbrella group for the world's central banks, said last week there is a need to ensure dollar funds remain available to firms that are enmeshed in global supply chains and in constant need of working capital.

More broadly, the reduction in dollar borrowing pressures in FX swaps did little to halt the greenback's rise.

The dollar index was broadly firm on Monday after rising 2.5% last week.

Comments

Comments are closed.