LIBOR Falls

The cost of three month dollar loans between banks fell ahead of an anticipated rate cut by the US Federal Reserve. The interbank lending rate for 3 month dollar loans known as the London Interbank Offered Rate (LIBOR) fell to just over 1.87 percent according to the British Bankers Association. This move is expected to affect the interbank Forex market as bankers await the decision of the Federal Reserve.

Fed Expected to Cut Rates Further

The Fed is expected to cut its rate to 0.50, it’s lowest in history. At the same time the rate for 3 month loans in Euros known as the EURIBOR fell 0.04 percentage points to 3.25 percent. The equivalent rate for British Pounds fell 0.05 percentage points to around 3.13%.

Interbank Forex Affects Everyone

Interbank Forex rates are important because they affect the costs of loans such as student loans or mortgages. Many US citizens are unaware that their home loans may be tied to LIBOR rates. In recent months rates have been high as banks hoarded cash instead of lending, creating a credit crunch affecting the day to day economy. Interbank fx rates affect the average person in ways they unaware of.

Rates Remain Above Benchmarks

All three lending rates still remain above the benchmarks set by central banks, 1 %in the U.S., 2.00 %in Britain and 2.50 %in the 15-nation euro zone. These figures suggest that banks are still reluctant to lend and the interbank forex market remains somewhat volatile because of this reluctance. The difference between bank lending rates and official base rates have fallen back towards one percentage point , well below levels seen in the Fall.

The interbank force market affects us all and although the average small investor does not have direct access to interbank Forex data, close monitoring of movements by central banks can yield some very useful information that can be turned into profits on Forex markets.