Interbank Market News Scan: Biden releases budget; inflation may not be that high next year; Nigeria’s central bank injects liquidity

Interbank, Pakistan, rupee. “The rupee reached a new record low on Monday, selling at 182.19 against the dollar in the interbank market, as political uncertainty triggered by a no-confidence move against Prime Minister Imran Khan weighed on sentiment, dealers said.” See article here. Source: The International News.

Interbank, Nigeria, naira, Access Bank. Similarly, (Access Bank) states that operating expenses at bank-level was up marginally by 2% year on year, showcasing the effectiveness of cost-cutting measures whilst also noting that FX rates on the Interbank market continued upward trend by 6% year on year to stand at N424 per dollar mainly driven by rate adjustments and lean supply. See article here. Source: Nairametrics.

Interbank, Pakistan, rupee. “The buying rate of 1 SAR to PKR was Rs 48.050 and the selling rate of 1 SAR to PKR was Rs 48.850 in the interbank market on Mar 28, 2022.” See article here. Source: BOL News.

Interbank, LIBOR, SOFR. “With a war waging in Central Europe, inflation at 50-year highs and the U.S. central bank looking to raise interest rates multiple times this year, you’d think that the average mortgage banker already has a pretty full plate. But add to the list of woes the Fed’s abortive transition from Libor to the Secured Overnight Financing Rate or SOFR and you have a recipe for disaster later this year.” — Christopher Whalen. See article here. Source: National Mortgage News.

Interbank, Nigeria, open market operations, naira. “In pursuant of its pro economic growth monetary policy the Central Bank of Nigeria, CBN, increased its net liquidity injection into the interbank money market by 110 per cent  to N770 billion in the first quarter of the year, Q1’22, from N367 billion in the fourth quarter of last year, Q4’21.” See article here. Source: Vanguard Nigeria.

Interbank, U.S., inflation, dollar. “Neuberger Berman expects extreme bond market volatility to stabilise and is counting on opportunities scooping up cheap high-yield and investment grade bonds in the telecom and energy sectors.” See article here. Source: Financial Review.

Interbank, U.S., budget, taxes. “Today, President Joe Biden released the FY2023 Budget to propose critical investments that will prioritize security at home and abroad, bolster the economy, promote health, tackle climate change, and further opportunity for all.” See article here. Source: U.S. Department of the Treasury.

Foreign exchange rates and dollar index as of 29 March 2022, 3:20 am GMT

Currency Pair28 March 202229 March 202230 March 202231 March 20221 April 2022
EUR/USD1.098341.09717   
GBP/USD1.317661.31204   
USD/CNY6.365266.37031   
USD/CHF0.930150.93439   
USD/NGN415.25415.181   
USD/ZAR14.527214.6255   
USD/AOA449.768448.000   
USD/INR76.01178.9895   
USD/JPY122.07123.527   
USD/SAR3.745243.74524   
Dollar Index99.0099.04   
Sources: OANDA, MarketWatch

Foreign exchange rates as of 12:13 am AST. United States, Great Britain, Canada, China, Angola, Nigeria, Japan

Currency Pair21 March 202222 March 202223 March 202224 March 202225 March 2022
EUR/USD1.104981.103681.100931.100881.09905
GBP/USD1.317481.316321.320521.323061.31868
USD/CNY6.359056.355546.362586.368546.36767
USD/CHF0.931750.93220.934120.933030.93138
USD/NGN415.42415.043415.732415.115414.015
USD/ZAR14.940114.938814.874714.779514.6555
USD/AOA449.794449.794449.438448.867449.194
USD/INR75.66375.968575.975976.123876.1478
USD/JPY119.145119.274120.537121.022121.77
USD/SAR3.745243.745243.745243.745243.74524
Dollar Index98.4998.4698.7898.8498.52
Sources: OANDA, MarketWatch

Foreign exchange rates and dollar index as of 6:22 am AST

Currency Pair21 March 202222 March 202223 March 202224 March 202225 March 2022
EUR/USD1.104981.103681.100931.10088 
GBP/USD1.317481.316321.320521.32306 
USD/CNY6.359056.355546.362586.36854 
USD/CHF0.931750.93220.934120.93303 
USD/NGN415.42415.043415.732415.115 
USD/ZAR14.940114.938814.874714.7795 
USD/AOA449.794449.794449.438448.867 
USD/INR75.66375.968575.975976.1238 
USD/JPY119.145119.274120.537121.022 
USD/SAR3.745243.745243.745243.74524 
Dollar Index98.4998.4698.7898.84 
Sources: OANDA, MarketWatch

Foreign exchange rates and dollar index as of 9:40 am AST

Currency Pair21 March 202222 March 202223 March 202224 March 202225 March 2022
EUR/USD1.104981.103681.10093  
GBP/USD1.317481.316321.32052  
USD/CNY6.359056.355546.36258  
USD/CHF0.931750.93220.93412  
USD/NGN415.42415.043415.732  
USD/ZAR14.940114.938814.8747  
USD/AOA449.794449.794449.438  
USD/INR75.66375.968575.9759  
USD/JPY119.145119.274120.537  
USD/SAR3.745243.745243.74524  
Dollar Index98.4998.4698.78  
Sources: OANDA, MarketWatch

Asia: Foreign exchange rates at 1:00 am AST

Currency Pair14 March 202215 March 202216 March 202217 March 202218 March 2022
USD/CNY6.334816.35857   
USD/JPY117.289117.914   
USD/INR76.53276.4171   
USD/PKR178.602178.945   
USD/BDT84.273684.5523   
USD/SAR3.745243.74524   
USD/SGD1.361511.3651   
USD/MYR4.191474.20053   
USD/VND22,874.122,888.5   
AUD/USD0.728990.72353   
NZD/USD0.680550.67795   
Dollar Index99.2898.87   
Sources: OANDA, MarketWatch

Federal Reserve News Scan: Federal Reserve today releases data on commercial paper, foreign exchange, and interest rates

Board of Governors

At 1:00pm today, the Board of Governors of the Federal Reserve (the Board) releases data on commercial paper.  At 4:15pm, the Board releases data on foreign exchange rates and interest rates.

Commercial paper refers to short term, unsecured debt typically maturing between one days to 90 days.  It is often issued at a discount, without paying coupons, and matures at face value. See current rates on commercial paper here.

Selected interest rate data includes data on the effective federal funds rate, commercial paper, bank prime loan, discount window primary credit, and U.S. government securities.  See current rates here.

U.S. and Caribbean Interbank Market News Scan: Foreign exchange rates of interest as of 10:35 am AST

Currency Pair7 March 20228 March 20229 March 202210 March 202211 March 2022
USD/BSD1.0000    
USD/JMD153.474    
USD/HTG104.162    
USD/DOP54.5152    
USD/XCD2.7000    
USD/BBD2.0000    
USD/TTD6.67887    
Source: OANDA

Dollar Index=98.73

Source: MarketWatch

Interbank Market News Scan: Higher dollar demand sends Pakistan rupee downward.

Interbank, Russia, commodities. “Currencies of commodity-exporting economies rallied on Wednesday as oil and metal prices soared in the aftermath of stinging sanctions on Russia over its invasion of Ukraine, while the rouble widened its divergence between onshore and offshore trading.” See article here. Source: Reuters.

Interbank, Russia, interest rates. “Bankers and investors are nervously watching Russia’s interbank interest rates for a spike that would foreshadow the start of a banking crisis. While rates have risen in recent days, they are not yet at the levels that would ring alarm bells, Capital Economics’ senior analyst Jason Turvey said in a note on March 2.” See article here. Source: BNE Intellinews.

Interbank, Pakistan, rupee, foreign exchange. “The rupee gave up the previous session’s gain on Wednesday amid higher dollar demand from importers and fears of worsening current account deficit, dealers said.” See article here.

Foreign exchange rates as of 11:20 pm AST

EUR/USD=1.1107

GBP/USD=1.33797

USD/CAD=1.26912

USD/MXN=20.5265

USD/JPY=114.937

USD/CNY=6.31083

USD/INR=75.4949

USD/NGN=415.524

Source: OANDA

Dollar Index=97.53

Source: MarketWatch

An importer wants to short the dollar …

Tywin Lannister decides to invest in the import/export business.  He wants to import certain goods from the United Kingdom and resell them in the United States.  He estimates that he will need 7.5 million British pounds (GBP) to purchase, package, process, and deliver his British goods to the U.S. 

At an exchange rate of $1.3740 per British pound, he estimates borrowing $10.305 million from his US bank.  The borrowed amount also includes his estimated profit.

To sweeten the deal with the prime brokerage division of his bank, he offers up $1.05 million dollars in cash and securities as collateral.

Lannister’s business venture so far in Great Britain is a success.  His take comes in (for the purpose of this discussion) at the estimated 7.5 million GBP which also includes his profit.  He would not mind expanding his profit so he hopes that the dollar weakens or depreciates. Fortunately for Lannister the dollar price of a pound has increased to $1.5801.  After converting his pounds to dollars, he realizes $11.85 million, and after repaying his loan, he takes home approximately $1.54 million in profit from his venture.

Lannister likely benefited from a number of market forces.  For example, incomes in the US may have been increasing faster than those in the UK thus increasing demand for the UK’s exports and currency.  The UK’s currency appreciates versus the US.

Prices in the US may have been rising rapidly when compared to prices in the UK. The resulting demand for lower priced UK products would have resulted in an appreciation of the UK’s products and currency.

In addition, interest rates in the UK may have risen higher than in the US, incentivizing the movement of money from the US to the UK resulting in an appreciated UK currency.

A trader’s sound monetary policy strategy will emphasize interest rate moves, but will not discount to zero the other market forces that impact currency values.  Lannister no doubt kept his eyes on all the factors, but given that a central bank is the “farmer” of its nation’s respective currency, Lannister, and any other importer, will pay close attention to the interest rate actions (monetary policy) of its central bank.

Alton Drew 23 September 2021