EURO zone’s Sovereign debt crisis concerns are escalated more trouble in the Forex market after the announcement of take over of Cordoba saving bank by the Bank of Spain. It is trying to save the cause of weakness of the country’s saving bank. The failure of saving banks leads to the weakness pressure on the funding market along with US dollar cost also seems to be risen. The cost of funding ultimately depends on the decision taken by the Central Bank on the merging proposal of all the four Spanish banks facing debt crisis.
LIBOR-OIS are providing signals of the financial need of the bank’s to each other where as currency pair EUR/USD cross-currency basis are demanding for the US Dollars rise. They are hoping for the liquidity that seems to be provided by the Central Bank of Spain. Since from past ten years consecutive five LIBOR rose rallies along with the US Dollars rise to three times as suggested by the LIBOR that we are still hoping for some great news from the US Dollar ends this year also. Although we know the fact of the financial crisis is the cost of funding along with its availability is the primary cause that begins from the past year that is 2007.
The Spain’s problem estimated a cost of almost 35 billion euro currency spending in the take over that may rise a hike on financial trouble over Spain. To fix the financial trouble the Central Bank has started taking measures on the merging process of four Spanish banks. The news of the market says about the Caja de Ahorros bank is planning to become a country’s fifth largest bank since many days from past. The IMF said on the behalf of Spain that the country is in under-pressure as fiscal consolidations needs to be speed up to regain its past budget structure rate.
As we are seeing that Spain is going through many troubles at once that is economic concerns along with Bank’s financial trouble that are leading to the weakness in country’s economy, huge fiscal deficits with low economic growth and external insecurity of finance. The IMF government has provide a hope to the Spain for taking good measures that will ultimately leads to the regain from the economic and financial trouble of the country.
In the past three month there was a rise seen in the LIBOR rate which rose for eleven consecutive days and reaches to the highest level yesterday since past year that is 2009. There was a negativity shown in the EUR/USD currency pair chart of cross-currency basis which indicates the demand of US dollars is still in strong position from the European banks. The Central bank have to take measure to increment the liquidity in the market because it was anticipated in the Global financial market the situation of money market will get worse as the time goes on.
Fed government has reintroduced the currency swapping with major Central banks along with ECB’s/EU/IMF from the past two week’s but we are not sure about the Fed that it will use it until the LIBOR rise more than the current status.