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The Dollar Funding Squeeze

Borrowing dollars has gotten even more expensive in recent weeks, and global FX markets are feeling the effects.

By Stephen Spratt | August 05, 2019 at 04:58 PM

The premiums that investors have to pay to swap euros, pounds, or yen into dollars for three months are close to their highest levels this year, as measured by cross-currency basis swaps. While there was a slight pullback at the end of July, the squeeze could have further to go, as it’s being driven by a wide array of factors.

Demand for dollars is increasing as investors prepare for an expected ramp up of Treasury bill issuance following a compromise among U.S. legislators over the debt ceiling. It’s also being driven by increasing bets on policy easing in Europe and the U.K., which are pressuring the euro and pound, and by Japanese investors looking to swap yen for dollars to buy overseas assets.

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