Clear money market difficulties have led theUS Federal Reserve to increase liquidity provided to open markets, extending up to a staggering $225 billion in 84-day credit to ease end-of-quarter funding constraints. Such actions reflects the Fed’s belief that money market conditions continue strained despite its great efforts to relieve them, and it seems that central bankers are almost willing to take matters into their own hands if the US Treasury’s bailout does not come to fruition.
Despite the Fed’s efforts, money markets have since deteriorated and it is difficult to predict whether we can expect buy/sell rollover interest rate payments on forex positions to improve in the week ahead. As long as major financial institutions remain unwilling to lend to each other, forex market conditions may make for expensive rollover interest rate payments through even the most liquid of forex pairs.
Such financial market stress has likewise translated into elevated transaction costs in the EUR/USD currency pair itself. The difference between Bid/Ask rates in the Euro/US Dollar pair has actually worsened through overnight trading. EUR/USD spreads remain below the extremely adverse levels seen following the Lehman Brothers bankruptcy filing, but it nonetheless remains clear that markets are far from normal. The chart below shows Bid/Ask spreads available in FXCM retail trading accounts through 2008. Since FXCM uses prices provided directly by the world’s major institutions’ currency dealing desks, this represents accurate picture of spreads available in interbank markets. FXCM markups are accounted for in the below spreads.
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