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Fed boosts U.S. dollar swap lines again amid crunch on greenback

Brian Cheung
Federal Reserve Board Chairman Jerome Powell steps over a chair after a Senate Banking Committee hearing on The Semiannual Monetary Policy Report to the Congress on Capitol Hill in Washington, U.S., February 12, 2020. REUTERS/Yuri Gripas

The Federal Reserve is again expanding its U.S. dollar swap lines to offer more liquidity globally as forex markets scrambled for greenbacks.

On Friday morning, the Fed announced that it would be increasing the frequency of its 7-day maturity operations with the world’s major central banks: the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank. The swap lines will now be offered daily instead of weekly.

The announcement comes one day after the Fed announced $60 billion of swap lines each with the central banks of Australia, Brazil, South Korea, Mexico, Singapore, and Sweden. It also unveiled lines of $30 billion each with the central banks of Denmark, Norway, and New Zealand.

“These facilities, like those already established between the Federal Reserve and other central banks, are designed to help lessen strains in global U.S. dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad,” the Fed said Thursday in a statement.

The novel coronavirus has sparked a worldwide scramble for U.S. dollars, particularly among companies trying to cover currency hedge positions.

The ensuing shortage of U.S. dollars around the world over recent weeks has raised questions about whether the Fed would step in beyond its Sunday announcement to lower borrowing costs to the overnight index swap (OIS) rate plus 25 basis points. That announcement was made with the Bank of Canada, the BoE, the BoJ, the ECB, and the SNB.

The Fed’s higher frequency operations announced Friday will begin Monday March 23 and last “at least through the end of April.”

Fed also targets money market relief

On Wednesday night, the Fed announced a Money Market Mutual Fund Liquidity Facility (MMLF) to make loans available in exchange for collateral like U.S. Treasuries, asset-backed commercial paper, and some unsecured commercial paper.

The facility is similar to the crisis-era Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), and includes $10B of credit protection from the Treasury.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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