European Debt Crisis: Demand for US dollar Rises amidst Signs of Funding Stress

From Reuters,

A larger-than-expected take-up of dollars at a European Central Bank tender on Wednesday reflected euro zone banks' funding stresses but the fact banks were using the facility was seen as a positive.

Banks took more than $50 billion at a three-month operation, which was the first since the world's major central banks cut the cost of using dollar swap lines with the Federal Reserve last week to help institutions struggling with the fallout from the euro zone debt crisis.

That was well above the $10 billion median forecast in a Reuters poll of money market traders. Banks also took $1.6 billion in one-week funds.

But analysts said there was no reason to panic as dollar-funding stresses were widely acknowledged already.

"We view this as a positive first step -- it leads a string of potential policy actions as authorities attempt to break the negative feedback loop from the euro zone and limit contagion back to the U.S.," said George Goncalves, head of U.S. interest rates strategy at Nomura Securities International in New York.

Morgan Stanley estimated the take-up in the ECB tender was the most since December 2008, with banks able to borrow dollars for three months at 0.58 percent compared with around 1.45 percent before the coordinated central bank action to lower the cost.

So the US Federal Reserve may have reactivated QE operations via swap line funding to the ECB, as previously discussed here and here

And today’s EU summit may grant license to the ECB to conduct more asset purchases (QE).