With interbank lending suffering, several central banks coordinated an emergency injection of dollar liquidity. The Fed, in conjunction with the ECB, BoJ, BoE, BoC and SNB, announced an expansion of $180bn in swap lines and pledged to work together to address ongoing pressures in global financial markets. Initially, overnight USD LIBOR went to 3.84% from 5.03% following the announcement and Fed Funds have moved closer to the 2% target. Risk appetite has also returned for now, and equities rallied on the announcement. The liquidity injection, though, does not alleviate existing concerns in the US financial sector. The 3m TED spread (TED spread is the difference in yields between inter-bank and U.S. Government loans.) continued to widen and several institutions still remain under pressure. As problems in the financial space prey on, I anticipate the EUR/USD to be range bound 1.4200 – 1.4700 in the near term. Keeping in mind the ADR's are double the average, meaning the foresaid range is small on a relative basis. Read More...

Tags: Intervention