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Categorized in | Featured Articles

LIBOR-OIS Spreads ‘Normal’

Greenspan Says LIBOR OIS Rates ‘Normal’

currency4The Libor-OIS spread fell to a level that former Fed Chairman Alan Greenspan called ‘normal, indicating a thaw in credit markets. The Libor-OIS spread which is a gauge of banks reluctance to lend fell to 25 basis points, the least since January 2008. The Libor-OIS spread also affects interbank forex markets. David Keeble of Calyon stated, “It certainly is good news and indicates that some normality is returning, at least in prices. It backs up what the Fed said last night. Everything seems to be going well at the moment.”

ECB Cuts Rates to Record Low

This is good news for both interbank and retail forex markets. Also affecting currency exchange rates was the news that the Eurozone economy contracted by a less- than-forecast 0.1 percent pushing the euro upward in both interbank and retail forex markets. The ECB cut its rate to a record low of 1% and started purchasing 60 billion euros ($86 billion USD) of bonds and provided unlimited amounts of euros to financial institutions. The ECB said in its bank lending survey that banks were less aggressive about credit standards for both companies and households.

Further Euro Gains ‘Not Likely’

The euro to dollar exchange rate rose to a one week high on Thursday as the good news from the Eurozone put downward pressure on the dollar. Demand for higher yielding assets and currencies put further pressure on the dollar. Some analysts say that further euro gains are not likely.  Adam Cole of RBC Capital Markets in London stated, “What we really need to see for the euro to run any further is some evidence from leading indicators that growth is actually turning positive at the moment. So there is a limit to how far it can run until we get some convincing evidence that Q3 is likely to be positive.”

The euro to dollar exchange rate was up 0.5% on Thursday and traded at $1.4270 and against the yen traded at 137.49. Both interbank and retail forex traders are waiting for US retail sales data due late Thursday.

Quick Forex Tip: The average investor usually participates in the interbank market through a broker who handles funds for a large group of investors. The large amount of money given to the broker gives him access to the favorable spreads available in the interbank market. For small investors there are a huge number of interbank FX reviews available online. These reviews give the average investor the ability to research the positives and negatives of the brokers reviewed. Most interbank FX reviews will detail customer service experiences, reliability and investment track records.


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