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Another Step Into the Market for the Fed

Written by A Forex View From Afar on Tuesday, October 14, 2008

The world’s major central banks are taking more unprecedented actions to steer the global credit crisis. The Fed has agreed with the European Central Bank, Bank of England and the Swiss National Bank to offer unlimited dollar funds in repos with a maturity of 7 days, 28 days and 84 days. Also, in the release statement it said Bank of Japan “will be considering the introduction of similar measures”.

This is just one of the recent measures the major central banks have taken to ease the money-markets strains. The Fed has made this decision because the inter-banking market has dried up, with banks unwilling to lend unsecured funds. The central banks announced that open market operations would be held at fixed interest.

Such operations are usually held using auctions for a limited amount of money, but this would send the Fed Funds close to zero, so this is why the “fixed interest rate” solution was chosen. The only problem for banks would be now to produce feasible collateral in order to access money from the central banks.

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Fundies and Trading
There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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