Central Banks Coordinate Against Euro Crisis
Global central bankers surprised the markets this morning – announcing that a coordinated effort will be made by six banks in order to help stem the financial strain from the European debt crisis. Early in the New York morning, the Federal Reserve announced that it would effectively lower the cost of emergency dollar funding by 50 basis points. Previous funding costs were centered on the overnight indexed swap rate by 100 basis points. The move makes it easier to access dollar based credit lines – a positive development considering European bank costs of funding in US dollars have risen to a 3-year high.
Besides the Federal Reserve, other central banks – including the Bank of Canada, Bank of Japan, Bank of England, Swiss National Bank and the European Central Bank – are set to extend bilateral swap lines involving their currencies as well – “should market conditions so warrant”. Both programs are set to take place as of December 5th and end February 1, 2013.
Today’s announcement is a welcome piece of news and comes at a time when European Finance Ministers remain indecisive as to the direction of a potential resolution. As a result, global markets are rising higher on the heels of the news, with commodity markets and European equity markets trading higher before the New York open. The Euro has benefited immensely from the release, soaring by 185 pips or 1.39% to trade significantly higher at 1.3500.