Dollar-supply crunch creating a crisis in Asia
A dollar-supply crunch in Europe is creating a shortage in Asia's financial centres, pushing up the cost of obtaining the greenback through swap market.
By Bloomberg | Updated:
SEOUL|HONG KONG: A dollar-supply crunch in Europe is creating a shortage in Asia’s financial centres, pushing up the cost of obtaining the greenback through the swap market.
“European banks are having difficulties with their dollar funding and that has spread to Asia, but it isn’t yet as bad as in 2008,” said Tetsuo Yoshikoshi, a senior economist at Sumitomo Mitsui Banking in Singapore.
“Capital inflows into places like Hong Kong and Singapore have pushed up dollar demand as investors hedge their local-currency positions.”
The European Central Bank lent dollars for the first time in six months after one undisclosed bank tapped $500 million from its liquidity supply operation on August 17, reflecting the reluctance of global finance companies to lend in the region.
European lenders may need to raise euro 80 billion ($116 billion) through year-end to fund their businesses, Morgan Stanley estimated in an August 15 report. The five-year basis swap in Singapore fell to minus 61.5 bps yesterday and reached minus 66, the lowest since Bloomberg started compiling the data in 1999.
Hong Kong’s one-year spread reached minus 48 on August 19, the lowest since at least 1997. The similar contract in South Korea touched minus 230 on August 19, the lowest since November 2009.
“Uncertainty in the overseas economy coming from the US is prompting dealers to secure dollars in advance,” said Kim Doo Hyun, a senior currency dealer at Korea Exchange Bank in Seoul.
“European banks are having difficulties with their dollar funding and that has spread to Asia, but it isn’t yet as bad as in 2008,” said Tetsuo Yoshikoshi, a senior economist at Sumitomo Mitsui Banking in Singapore.
“Capital inflows into places like Hong Kong and Singapore have pushed up dollar demand as investors hedge their local-currency positions.”
The European Central Bank lent dollars for the first time in six months after one undisclosed bank tapped $500 million from its liquidity supply operation on August 17, reflecting the reluctance of global finance companies to lend in the region.
European lenders may need to raise euro 80 billion ($116 billion) through year-end to fund their businesses, Morgan Stanley estimated in an August 15 report. The five-year basis swap in Singapore fell to minus 61.5 bps yesterday and reached minus 66, the lowest since Bloomberg started compiling the data in 1999.
Hong Kong’s one-year spread reached minus 48 on August 19, the lowest since at least 1997. The similar contract in South Korea touched minus 230 on August 19, the lowest since November 2009.
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“Uncertainty in the overseas economy coming from the US is prompting dealers to secure dollars in advance,” said Kim Doo Hyun, a senior currency dealer at Korea Exchange Bank in Seoul.
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