Forex Blog - Fed's Foreign Currency Swaps Today Aimed at Reducing Creditor Fears about Risk of Dollar Crisis
Today‚Äôs announcement of new swap facilities with the FRB and BOJ (JY10trln), ECB (EUR80bln), BOE (GBP30bln) and SNB (CHF40bln) or roughly US$300bln in foreign currency is not benign‚Ä¶at the very least it is a strong message that a weaker dollar is not a serious risk ahead for foreign creditors to the US. And this question played big ahead of and during G20 last week -- China and Russia explicitly and Europe implicitly (excluding the Czech government tirade).
With $300bln in foreign currency US authorities now have substantial new access to foreign currency to sell to the market in currency intervention or lend to the banking system in money market operations through the end of October (look for these facilities to be rolled) to meet any significant demand from the market and or banking system for foreign currency in the period ahead. Keep in mind that the Fed has large swap lines now with foreign central banks which could also be used to support dollar needs in the financial markets. But since these are drawn on by foreign central banks with dollars lent to local banks, we assume the Fed is not comfortable drawing on the foreign currency while the US dollars are outstanding with foreign central banks and their clients, local banks. So we have two swap facilities -- one that is for foreign central banks to lend dollars to local banks and one that is for the Fed in the event there is a need to defend the dollar or meet a dollar surplus (foreign currency shortage).
With more thought and conversations, my initial take that some hole needs to be filled in US financial system (non-bank financial or bank) is not very likely. There would be signs of any dislocations in the credit markets of a foreign currency shortage if so and this is simply not in evidence. Keep in mind credit markets were blaring signs of stress in global capital markets last fall related in part to a US dollar funding shortage (the currency of origination for credit derivatives).
Why does the Fed need to show the world it has some deep pockets if there is a need ahead to support the dollar? Keep in mind the Fed and Treasury have around $75bln in foreign currency, gold and SDRs (and very small USD deposits) with about $45bln in mostly euros and yen. In today‚Äôs age of available currency reserves the Fed and Treasury looked under gunned, especially if you are from China. And the US international reserves are complicated by difficulties resulting from the US Treasury committing its Exchange Stabilization Fund to the insurance program supporting money market accounts set up last year. And gold reserves are messy -- need another arm of government to sell (valued at $42 an ounce for $11bln in total -- no mark-to-market accounting here - at today‚Äôs price US gold reserves are $220bln).
So today‚Äôs news in hindsight appears more benign than my initial take (some unreported new hole to fill that the stress test or AIG books revealed). However, the news is a significant pro-dollar development and is clearly aimed at assuring the largest foreign creditors t the US like China that mechanisms are in place that could be used to fund a massive dollar support operation. In other words the US monetary authorities are saying there will be no dollar failure ahead much as there will be no large failure of a major financial institution. Does this mean the US won‚Äôt tolerate a weaker USD ahead? No. What it does mean is there will be tolerance for orderly movements up and down in the dollar, but there will not be much tolerance for any systemically important declines in the US currency. No doubt these facilities come days after G20 and reflect an attempt by key players to address the worry of some members over the USD ahead.
I do think the measure adds some flesh and meat to the bones of a strong dollar policy‚Ä¶There is now a much bigger safety net in place.
Lastly, the history of swap lines with the Fed goes back to the Carter admin when there was a serious effort to support the dollar (even sold gold to buy dollars) and hung around through most of the 1990‚Äôs (used with Mexico during the Tequila Crisis). But by the late 1990‚Äôs they were seen as relics and instead of being automatically renewed most swap arrangements the Fed had with foreign central banks were allowed to mature. Clearly their reemergence September 18, 2008 in a large way is another way of saying that capital markets left to their own are not always rational allocation machines and having more in place to allow government to smooth volatility is necessary‚Ä¶long live neo-classical economics on a policy level and welcome back neo-Keynesian economics.
Press releases from today and September 18, 2008.
Today‚Äôs press releases from the Fed and ECB (identical) and followed by press releases from September 18, 2008 when currency swaps were first announced to cope with a dollar funding need. Today‚Äôs language is very much about a US foreign currency funding need. What that need is is unclear.
For release at
The Federal Reserve, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank announce swap arrangements
The Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing swap arrangements that would enable the provision of foreign currency liquidity by the Federal Reserve to U.S. financial institutions. Should the need arise, euro, yen, sterling and Swiss francs would be provided to the Federal Reserve via these additional swap agreements with the relevant central banks. Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets.
Federal Reserve Actions The Federal Open Market Committee has authorized new temporary reciprocal currency arrangements (foreign currency liquidity swap lines) with the Bank of England, the ECB, the Bank of Japan, and the Swiss National Bank. If drawn upon, these arrangements would support operations by the Federal Reserve to provide liquidity in sterling in amounts of up to ¬£30 billion, in euro in amounts of up to EUR80 billion, in yen in amounts of up to ¬•10 trillion, and in Swiss francs in amounts of up to CHF40 billion.
These foreign currency liquidity swap lines have been authorized through October 30, 2009.
6 April 2009 - Central banks announce expanded swap arrangements
The Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing swap arrangements that would enable the provision of foreign currency liquidity by the Federal Reserve to US financial institutions. Should the need arise, euro, yen, sterling and Swiss francs would be provided to the Federal Reserve via these additional swap agreements with the relevant central banks. Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets.
The Governing Council of the ECB has decided to establish a temporary reciprocal currency arrangement (swap line) with the Federal Reserve. This agreement will provide the Federal Reserve with the capacity to offer liquidity of up to EUR 80 billion. The Governing Council approved this swap line until 30 October 2009.
Release Date: September 18, 2008
For release at
Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.
Federal Reserve Actions The Federal Open Market Committee has authorized a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks.
The FOMC has authorized increases in the existing swap lines with the ECB and the Swiss National Bank. These larger facilities will now support the provision of U.S. dollar liquidity in amounts of up to $110 billion by the ECB, an increase of $55 billion, and up to $27 billion by the Swiss National Bank, an increase of $15 billion.
In addition, new swap facilities have been authorized with the Bank of Japan, the Bank of England, and the Bank of Canada. These facilities will support the provision of U.S. dollar liquidity in amounts of up to $60 billion by the Bank of Japan, $40 billion by the Bank of England, and $10 billion by the Bank of Canada.
All of these reciprocal currency arrangements have been authorized through January 30, 2009.
ECB Sept 18 press release
18 September 2008 - Measures designed to address elevated pressures in the short-term US dollar funding markets
Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan and the Swiss National Bank are announcing co-ordinated measures designed to address the continued elevated pressures in short-term US dollar funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets. The central banks continue to work together closely and will take appropriate steps to address the ongoing pressures.
The Governing Council of the ECB has decided to reinforce its joint action with the Federal Reserve by adding an overnight maturity to its operations providing US dollar funding to Eurosystem counterparties and by increasing the amounts offered in the Term Auction Facility operations.
As regards the overnight US dollar funding, the Eurosystem shall conduct US dollar liquidity-providing operations with its counterparties against Eurosystem-eligible collateral, applying a variable rate tender procedure. It is intended to continue the provision of US dollar liquidity for as long as needed in view of the prevailing market conditions. The US dollars will be provided by the Federal Reserve to the ECB, up to USD 40 billion by means of a temporary reciprocal currency arrangement (swap line). The operational details can be obtained from the ECB's website (www.ecb.europa.eu).
As regards the Term Auction Facility operations, the Governing Council of the ECB has decided, in conjunction with the Federal Reserve, to increase the amount of US dollar liquidity provided to the counterparties of the Eurosystem to USD 25 billion for the 28-days maturity operations, and to USD 15 billion for the 84-days maturity operations.
Overall, the dollar funding operations conducted by the Eurosystem could reach an outstanding amount of USD 110 billion, compared to the current USD 50 billion.
Forex Trading News
Daily Forex Market News Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Forex News Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."
Actionable trading levels delivered to YOUR charts in real-time.
Tue 31 July 2018 AA JP- Bank of Japan A 06:00 DE- Retail Sales A 09:00 EZ- flash HICP/GDP AA 12:30 US- Core PCE Deflator A 14:00 US- CB Consumer Confidence Wed 1 Aug 2018 A Final Mfg PMIs AA 12:15 US- ADP Private Payrolls A 15:00 US- EIA Crude AA 18:00 US- Federal Reserve Decision Thu 2 Aug 2018 AA 11:00 GB- Bank of England Decision A 13:30 US- Weekly Jobless Fri 3 Aug 2018 A Final Services PMIs AA 12:30 US- Employment A 12:30 US/CA- Trade
John M. Bland, MBA co-founding Partner, Global-View.com
Global-View Affiliate Program
We are starting an affiliate program to market some of our products.
Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.
Put the word "affiliate" in the email subject line.
Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.