"European banks are finding dollars an expensive commodity once again, as the afterglow fades from a coordinated central bank plan to improve liquidity.
Swapping euros for dollars now costs about as much as it did before the European Central Bank said Thursday it would work with counterparts in the U.S., Europe and Japan to provide dollars for banks struggling to access U.S. currency. The three-month euro-dollar swap is quoted at minus 90.5 basis points, from minus 76.5 points on Thursday. The swap was at minus 92 points before the ECB announcement.
When European banks lose access to dollars, they have to issue debt in euros and swap it into US dollars, paying extra for this exchange. This extra amount is measured by the basis swap.
A growing belief that Greece will default on its debt–and uncertainty about the impact on other troubled euro-zone economies and banks–is once again driving up dollar funding costs. A teleconference between Greek officials and the troika of creditors–the European Central Bank, the International Monetary Fund and the European Union–is scheduled for later Monday to ascertain whether the country has done enough to get its finances back on track. At stake is the release of the next instalment of aid–EUR8 billion–without which Greece has said it will run out of cash by the middle of October.
Swapping euros for dollars now costs about as much as it did before the European Central Bank said Thursday it would work with counterparts in the U.S., Europe and Japan to provide dollars for banks struggling to access U.S. currency. The three-month euro-dollar swap is quoted at minus 90.5 basis points, from minus 76.5 points on Thursday. The swap was at minus 92 points before the ECB announcement.
When European banks lose access to dollars, they have to issue debt in euros and swap it into US dollars, paying extra for this exchange. This extra amount is measured by the basis swap.
A growing belief that Greece will default on its debt–and uncertainty about the impact on other troubled euro-zone economies and banks–is once again driving up dollar funding costs. A teleconference between Greek officials and the troika of creditors–the European Central Bank, the International Monetary Fund and the European Union–is scheduled for later Monday to ascertain whether the country has done enough to get its finances back on track. At stake is the release of the next instalment of aid–EUR8 billion–without which Greece has said it will run out of cash by the middle of October.
“With more than 90% chance of default by Greece, this is just the yo-yo effect,” said Kedric Dines, head of interest rate derivative sales at Mizuho Corporate Bank in New York. “We’ll see a fickle market reacting to all the news.”at http://pragcap.com/dollar-funding-costs-rise-as-central-banks-plan-seen-as-inadequate
