<p>Dollar borrowing costs in the foreign exchange swap markets retreated further on Monday, with swap rates against the euro and pound falling to their lowest levels in more than a decade.</p>.<p>These moves indicate recent emergency actions by global central banks have managed to squelch a growing dollar shortage in these markets.</p>.<p>Costs dropped after the U.S. Federal Reserve stepped in, first renewing swap lines with major central banks, then extending similar facilities to other central banks, and finally establishing a new temporary 'repo' facility.</p>.<p>"Policies put in place to settle markets have created new distortions of their own," Natwest market strategists said in a note. "Judging from cross-currency basis swaps, there has been a swing from an acute dollar shortage to an oversupply."</p>.<p>Dollar borrowing rates via the 3-month euro-dollar FX swap fell to a 12-year low of minus 65 bps, indicating that European borrowers are able to borrow greenback at a discount. This rate had swung to a 2011 European crisis-era high of more than 150 bps two weeks earlier.</p>.<p>Similarly, borrowing costs against the pound in the 3-month sterling-dollar FX swap market also fell to a 12-year lows of minus 42 bps. Three-month dollar-yen swaps also also fell its lowest level in eight years at minus 30 bps, according to Refinitiv data.</p>.<p>However the reversal in the currency swaps market was not reflected in other corners of the derivative markets with 2008 financial crisis era indicators such as FRA-OIS spreads still stuck near multi-year highs, partly a reflection of a broad demand for dollars among companies. Strategists at the Bank for International Settlements, an umbrella group for the world's central banks, said last week there is a need to ensure dollar funds remain available to firms that are enmeshed in global supply chains and in constant need of working capital.</p>.<p>More broadly, the reduction in dollar borrowing pressures in FX swaps did little to halt the greenback's rise. The dollar index was broadly firm on Monday after rising 2.5% last week.</p>
<p>Dollar borrowing costs in the foreign exchange swap markets retreated further on Monday, with swap rates against the euro and pound falling to their lowest levels in more than a decade.</p>.<p>These moves indicate recent emergency actions by global central banks have managed to squelch a growing dollar shortage in these markets.</p>.<p>Costs dropped after the U.S. Federal Reserve stepped in, first renewing swap lines with major central banks, then extending similar facilities to other central banks, and finally establishing a new temporary 'repo' facility.</p>.<p>"Policies put in place to settle markets have created new distortions of their own," Natwest market strategists said in a note. "Judging from cross-currency basis swaps, there has been a swing from an acute dollar shortage to an oversupply."</p>.<p>Dollar borrowing rates via the 3-month euro-dollar FX swap fell to a 12-year low of minus 65 bps, indicating that European borrowers are able to borrow greenback at a discount. This rate had swung to a 2011 European crisis-era high of more than 150 bps two weeks earlier.</p>.<p>Similarly, borrowing costs against the pound in the 3-month sterling-dollar FX swap market also fell to a 12-year lows of minus 42 bps. Three-month dollar-yen swaps also also fell its lowest level in eight years at minus 30 bps, according to Refinitiv data.</p>.<p>However the reversal in the currency swaps market was not reflected in other corners of the derivative markets with 2008 financial crisis era indicators such as FRA-OIS spreads still stuck near multi-year highs, partly a reflection of a broad demand for dollars among companies. Strategists at the Bank for International Settlements, an umbrella group for the world's central banks, said last week there is a need to ensure dollar funds remain available to firms that are enmeshed in global supply chains and in constant need of working capital.</p>.<p>More broadly, the reduction in dollar borrowing pressures in FX swaps did little to halt the greenback's rise. The dollar index was broadly firm on Monday after rising 2.5% last week.</p>