The interbank cost of borrowing dollars edged up on Tuesday, ahead of a US Federal Reserve meeting where policymakers were expected to discuss whether further measures are needed to support the sluggish economy. Most analysts say the Fed's Federal Open Market Committee (FOMC) is unlikely to signal an immediate expansion of its quantitative easing (QE) campaign of Treasury purchases and that could be seen as a negative outcome for fixed income prices, from rate futures to long bonds.
"While one could make a case for more QE since the end of August economic indicators are suggesting some improvement so it could be much harder to convince the more hawkish members of the FOMC of the need for more stimulus at this juncture," said Investec economist Philip Shaw. Three-month dollar interbank rates edged off their lowest since late March to fix at 0.29031 percent ahead of the Fed's rate decision, which is due around 1815 GMT.
In the eurozone, banks took 153.78 billion euros in one-week funds from the European Central Bank, only slightly more than the 151.6 billion maturing. That keeps excess liquidity in the system around 100 billion euros, and should see the Eonia overnight rate hold at around 0.45 percent.
The maturity of 225 billion euros of three-, six- and 12-month funds on September 30 and uncertainty over how much of this cash banks will renew has seen forward money market rates push higher. Three-month euro Libor rates were unchanged at 0.82875 percent for the third day.