5 Major Central Banks Jointly Note The Liquidity Of The US Dollar &Nbsp; The European Banking Industry'S Near Thirst.

Five main factors

Stimulated by this news, the stock market in Europe and America rose yesterday.

The three largest indexes in Europe, the British FTSE 100 index, the French CAC40 index and the German DAX index closed up 2.2%, 3.3% and 3% respectively. As of 23:40 Beijing time yesterday, the Dow Jones industrial average rose 1%, while the euro rose 0.7% and 0.8% against the US dollar (1.3851, -0.0029, -0.21%) and the Japanese yen.

Analysts believe that because the liquidity problem of the major banks in Europe has begun to cause market concerns, the five central bank's move is aimed at reducing the cost of borrowing dollars from the market, thus not meeting the demand for us dollar liquidity in the European banking industry.

Alleviating short term

According to the announcement issued by the European Central Bank on Thursday, the five major central banks will cooperate in the implementation of the three US dollar liquidity injection operation for a period of about three months, and the whole tendering will continue until the end of the year.

The European Central Bank said the new US dollar liquidity bid is a complement to the ECB's weekly dollar swap operation.

The new dynamic tendering adopts fixed rate repurchase agreements with qualified collateral as collateral and will allocate funds in full.

The three tenders are in October 12th, November 9th and December 7th, each time period is 84 days, to ensure that there are enough US dollar liquidity in the European region by the end of this year.

The Swiss central bank said in a statement of the day that these operations will assist in the 7 day liquidity operation.

Citigroup analysts believe that the joint action of the five central banks is "in a rainy day to meet the liquidity needs of the US dollar".

This initiative can temporarily avoid the financing crisis; however, if there is a major accident, the intensity of this initiative may still be insufficient, but it may well be enough to cope with the end of the year.

"The market will interpret this as positive, and the five major central banks are using all means to prevent the outbreak of the crisis."

Sartoris Rainer Sartoris, a private bank in Germany, commented that in recent weeks, the credit position of some credit institutions was tight. "This measure can alleviate this problem, because long-term liquidity is abundant," said Rainer Sartoris.

Shah Divyang Shah, a IFR Markets analyst at Thomson Reuters, said the news eased the market's concern about the lack of liquidity in the European banking sector.

"The joint operation of the five major central banks may raise the expectation that policymakers will further announce policies and measures not only to solve the euro area sovereign debt crisis and the symptoms of financial crisis, but also to get Greece back on track, dispel rumors of default, and directly inject capital into some banks, or even widespread capital injection to ease market concerns," he said.

Shah said.

Zhang Dawei, an analyst with Asia's foreign exchange network, told the first financial daily (micro-blog) after the news release that the significance of this joint intervention is to increase the liquidity of the US dollar in the circulation sector without increasing the total US dollar.

Zhang Dawei said, "the main central bank will adjust the US dollar position through mutual adjustment, so that the market will lower the cost and interest rate of borrowing the US dollar".

Zhang Dawei said that the recent fluctuations in the US dollar are to countries.

The news has already had an impact on the foreign exchange market, the risk currencies have rebounded all over the US dollar index has fallen rapidly.

As of 23:40 Beijing time yesterday, the US dollar index was 76.369, down 0.5.

European banking industry's "near thirst"

Behind this "rainy day" action is the growing pressure of financing from the European banking sector.

As the European banking industry becomes increasingly difficult to obtain more US dollars for loans to us customers, the liquidity problem of the major banks in Europe has begun to cause market concern.

Due to reduced funding from the US, although the European Central Bank has injected USD into the 17 member countries of the euro area to solve the urgent problem, the tension of the US dollar liquidity in the euro area banking sector is still getting worse.

The European Central Bank said on Wednesday that two banks had received $575 million from it.

This is the second time the ECB has issued US dollar funds in six months.

This is a sign that European banks are hard to get dollars in the market, while European banks have gained nearly three years in the us through the swap market.

Joseph Abate, Barclays Capital's New York based strategist in Abbate, said: "the situation is deteriorating. This week and probably since August, the difficulty of obtaining unsecured financing in the European banking sector seems to be increasing."