The central banks of the United States, the euro zone, Canada, Britain, Japan and Switzerland agreed on Friday to increase the frequency of their one-week U.S. dollars credit facility.
“To improve the swap lines’ effectiveness in providing U.S. dollar funding, these central banks have agreed to increase the frequency of 7-day maturity operations from weekly to daily,” a European Central Bank statement said.
The daily operations will commence on Monday and are to continue at least through end-April.
The U.S. dollar index slipped after the statement while cross-currency basis swap spreads on the dollar, narrowed sharply.
The following are analyst comments on the ECB’s strategy:
MARCHEL ALEXANDROVICH, EUROPEAN FINANCIAL ECONOMIST, JEFFERIES
“I think it seems that they (central banks) are hoping this will be the final piece of the puzzle.”
“They have all acted individually and have provided dollar funding. But this intervention sends another signal that any disruption to liquidity will not be tolerated and they will make sure that interbank markets are functioning.”
SALMAN AHMED, CHIEF INVESTMENT STRATEGIST, LOMBARD ODIER
“If this doesn’t do the trick – I don’t know what will! This is proper coordinated effort to stop dollar funding issues adding to the financial doom loop. Credible move and covers longer periods so there is more certainty in a system which is very short of it.”
JAN VON GERICH, CHIEF ANALYST AT NORDEA MARKETS
“There’s been a lot of measure to address the dollar-shortage problem, which you can only really addressed with coordination.”
“The dollar funding markets were frozen and the opening of swap lines, ECB operations have all helped. Today’s steps certainly help but the worst may be over already.”
CLAIRE DISSAUX, HEAD OF GLOBAL ECONOMICS AND STRATEGY, MILLENIUM GLOBAL
“This is part of the plumbing organized by the Fed to reduce dollar shortage: the frequency of its swap operations (weekly) (via lines set up with other major central banks) was seen as not high enough to reduce dollar funding stress, this is now changed to daily. The dollar is somewhat softer on the news, cross-currency basis swaps are narrowing, as you would expect.”
ULRICH LEUCHTMAN, HEAD OF FX STRATEGY AT COMMERZBANK
“I think it’s a smart move. We have seen that them making swap arrangements more attractive has not really calmed down the market. I think partly the market has got to get used to using these. I think switching to daily frequency will hopefully calm things down. What we’ve seen is a run on the dollar. This may subside a little bit. But I fear we are getting into a two class world - central banks able to arrange these swap arrangements and those that aren’t.”