The data as of 11:32 EST …
Investing.com has calculated a forward rate contract price for EUR/USD on 16 May 2025 at 1.1205. That compares with my back of the napkin forward rate calculation of EUR/USD=1.1210 on Friday.
The NADEX is pricing the probability of EUR/USD exceeding 1.1225 at $4.50.
At 11:00 am, Reuters priced the EUR/USD at 1.1209, down slightly from the 1.1217 reported around 9:57 am. The USD/JPY was priced at 146.12 at 11:00 am ticking down slightly from the 146.29 reported at 9:57 am.
The Federal Reserve Bank of New York reports the following interbank reference rates:
Effective Federal Funds Rate: 4.33%
Overnight Bank Funding Rate: 4.33%
Secured Overnight Funding Rate: 4.30%
Broad General Collateral Rate: 4.29%
Tri-Party General Collateral Rate: 4.29%
Will Federal Reserve funding agreements keep the Eurozone banks afloat?
Reuters today reported that weaker inflation data makes the case for the Federal Reserve easing rates. The markets, according to the article, have returned to being skeptical and uncertain. The 0.2% inflation rate reported by the U.S Bureau of Labor Statistics was below market expectations, and the weakening dollar may be, according to the article, a sign that the dollar is being sold ahead of potential deterioration in U.S. data.
Reuters also reports that the European Central Bank is asking eurozone lenders to assess the need for US dollars during times of stress. One-fifth of eurozone funding needs are in US dollars and money markets, where dollars are loaned and borrowed during the short term, can shut down in times of financial stress.
The Federal Reserve Bank of New York (FRBNY) has an agreement with the European Central Bank (ECB). Specifically, the ECB agrees to sell euro to the FRNBY and to purchase dollars from the FRNBY at spot prices. At the same time, the ECB agrees to sell dollars back to the FRBNY and to purchase euro from the FRBNY on the maturity date of the transaction via a forward contract.
According to the agreement, the rationale behind the above swap transaction is to keep the financial markets functioning while providing banks with liquidity in the form of US dollars. There have been no signals from the Federal Reserve that they will not be able to supply dollars per the agreement if Europe experiences any dollar stresses.
But what about pricing for these dollars should there be an increase in demand? Will short term rates for dollars increase? In my opinion, the increase in supply of USD should drive down the price of US dollars in the short term after a swap. If there is an increase in the price of consumer goods and services, will that price inflation occur solely in Europe? Will some of that European consumer price inflation seep into the US if dollars are returned here for investment?
Something for traders to consider over the medium term.
Alton Drew
14 May 2025
Disclaimer: The above post is offered as a thought exercise and should not be substituted for professional trade advice. If you wish to consult on legal aspects concerning the subject of the article, reach out to me at altondrew@altondrew.com for an appointment.
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