Two Brakes on Dollar Bulls

The market is talking about the possibility of two official measures and that is helping stabilize the major foreign currencies at lower levels.  The first is talk that the Federal Reserve could cut the interest rate on the swap lines by 100 bp, which would essentially lower the rate to the Fed funds rate.  It would help boost liquidity and make it easier to secure dollar funding.

The other talking point now is that the ECB is considering introducing a (very) long dated repo operation. Rather than 3 or 6 month operation the talk is that it could offer a 2-year repo.  This would also help ease funding insecurity.

Either or both these measures would help move the markets further away from the abyss.  They may not be panaceas, but they would buy time and that seems to be of the essence presently.  The other take away from this talk is that officials have dry powder left and the market volatility is keeping their feet in the fire and forcing them to respond.  The World Bank/IMF meeting this weekend might just be a forum of new initiatives.