Daily Management Review

European banks are short of dollars


Dollar liquidity is shrinking, which leads to strengthening of the US currency. Besides, it is causing problems in some banks that are short of dollars.

One of the reasons for this can be called a large-scale US borrowing program. For the III quarter, the US Treasury plans to borrow $ 434 billion. Such a volume can only be compared with the crisis of 2008-2009. In other words, borrowing is practically at a record level.

Given the fact that treasury yields are higher than, for example, in Europe, it is not surprising that capital is leaving the Eurozone for the US debt market. In addition, the flight to the least risky assets is facilitated by uncertainty in the trade war and turbulence in the markets.

Against this background, the Eurozone is showing signs of a dollar liquidity crisis.

The European Central Bank regularly provides dollars to banks, but last week the demand for US currency rose sharply and reached almost $ 1 billion, which is the highest since the end of last year.

It is known that three banks have applied for dollars at once, and they borrowed at rates higher than interbank ones. In essence, this is a liquidity crisis that could translate into problems of a more substantial scale. However, the ECB's presence of a swap line with the Fed will probably help smooth out the situation.

The current state of affairs is clearly reflected in the Forex currency market, where the dollar is rapidly strengthening against almost all currencies, and the quotes of the main euro/dollar pair have fallen below 1.10 and have been at lows since 2017.

source: bloomberg.com