The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Foreign Exchange

FX comment: Scramble for dollar liquidity intensifies

It was an old friend, still trading forward cable, who first alerted me to the beginnings of a Libor/OIS basis blowout a couple of weeks ago. But at the start of this week the move took a more desperate turn as the hunt for dollars accelerated with rumours of a Spanish bank being unable to cover its short-term USD funding.

Over the past two weeks, one-month and three-month GBP/USD FX swaps have moved from –2 and –5 to +2 and +5 respectively, equating, by my reckoning, to about 35 basis points of dollar tightening in the interest rate spread. But it took a note on Tuesday from Laurence Mutkin and Elaine Lin of Morgan Stanley to put the move in some perspective.

They point out that that the ECB’s “full-allocation USD tenders provide an unlimited amount of USD to banks at an implied OIS+100bp”. However, with that implied level still far higher than Libor and even the FX basis, the tender has so far “attracted a negligible $1 billion of interest from the market” – a different situation to 2008 when it was “accepted with enthusiasm”.

Take out a complimentary trial

Take out a 7 day trial to gain unlimited access to and analysis and receive expertly-curated updates direct to your inbox.


Already a user?

Login now


We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree