Fed boosts U.S. dollar swap lines amid crunch on greenback

The Federal Reserve announced Thursday morning that it would be expanding its U.S. dollar swap lines to offer more swaps for foreign currencies in an effort to relieve stress in forex markets.

The central bank said it would offer $60 billion each with the central banks of Australia, Brazil, South Korea, Mexico, Singapore, and Sweden. It will also offer $30 billion each with the central banks of Denmark, Norway, and New Zealand.

“These facilities, like those already established between the Federal Reserve and other central banks, are designed to help lessen strains in global U.S. dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad,” the Fed said in a statement.

The novel coronavirus has sparked a worldwide scramble for U.S. dollars, particularly among companies trying to cover currency hedge positions. The ensuing shortage of U.S. dollars around the world over recent weeks has raised questions about whether the Fed would step in beyond its Sunday announcement to lower borrowing costs to the overnight index swap (OIS) rate plus 25 basis points.

On Wednesday night, the Fed announced a Money Market Mutual Fund Liquidity Facility (MMLF) to make loans available in exchange for collateral like U.S. Treasuries, asset-backed commercial paper, and some unsecured commercial paper.

The facility is similar to the crisis-era Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), and includes $10B of credit protection from the Treasury.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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