United States Federal Reserve Building, Washington DC
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The US Federal Reserve has been working with other global central banks to ensure dollars are available to stem any liquidity issues in the global financial system.
The Fed said Sunday it had joined the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank in a coordinated effort to improve the liquidity provision through standing US dollar swap line agreements.
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In doing so, monetary authorities said the move “would serve as an important backstop to ease stress in global funding markets, helping to mitigate the effects of such stress on the supply of credit to households and businesses.” .
The move came the same day UBS announced it was buying Credit Suisse to help ease concerns about the global financial system. Swiss authorities brokered the deal to avoid a disorderly collapse of the bank and concerns are growing over financial turmoil on both sides of the Atlantic.
“To improve the effectiveness of swap lines in US dollar funding, central banks currently offering US dollar operations have agreed to increase the frequency of seven-day maturity operations from weekly to daily,” a- he added. the Fed said in a statement published alongside the announcements of the other five central banks.
Operations will begin on Monday and will continue until at least the end of April, the Fed said.
The move comes just days before the Fed’s two-day meeting, after which it will announce its intentions on interest rates. As of Sunday evening, markets were pricing around a 74% chance of a quarter-percentage-point increase on Wednesday, according to CME Group’s FedWatch gauge.
The UBS-Credit Suisse deal and the swap lines maneuver likely increase the odds of a rate hike, said Krishna Guha, head of global policy and central bank strategy at Evercore ISI.
“The implications for the Fed on Wednesday are far from clear. In principle, the interventions set the stage for a cautious 25-voy hike, still our base case. But the currency swap signals global concerns about the U.S. and if we were to see a severe negative reaction from European financials to the news could stop a rise,” Guha said in a client note.
—Reuters contributed to this report.