Central Banks Make Coordinated Move to Enhance Swap Lines
The move will take effect Monday, March 23 and will continue at least through the end of April.
(Bloomberg) -- The Federal Reserve, along with central banks in Europe, Japan, the U.K., Canada and Switzerland, announced a coordinated action Friday to beef up dollar liquidity swap line arrangements in another move designed to keep dollar liquidity ample around the world.
The move will take effect Monday, March 23 and will continue at least through the end of April.
“To improve the swap lines’ effectiveness in providing U.S. dollar funding, these central banks have agreed to increase the frequency of seven-day maturity operations from weekly to daily,” the Fed said in a statement.
While the greenback was little affected in the spot foreign-exchange market and the Bloomberg dollar index maintained its pullback for the day, three-month forward points for the euro-dollar and dollar-yen pairs showed signs of reduced strain following the Fed announcement. U.S. stocks moved marginally higher, while the 10-year Treasury yield held onto most of its drop for the day.
Swap lines “serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad,” the statement said.
With many international transactions denominated in dollars, companies around the world are forced to pay more to settle bills when dollar supply grows short and the value of the dollar surges. The Bloomberg Dollar Spot Index, launched in 2005, reached its highest level on record Friday.
Central banks will continue to hold weekly 84-day maturity operations.
©2020 Bloomberg L.P.