I have spoken a lot about cross-currency basis swaps, but many people may still be wondering what a cross-currency basis swap is and why they should even care? Something that has seemed to confuse many people, especially those who have been more outspokenly bearish on the dollar, is its strength in the face of all the geopolitical and macroeconomic events taking place simultaneously. There is also a lot of talk about all the “money printing” (I hate that term) taking place, and when I state there is still a shortage of dollars, they say are you crazy? In the question to dollar shortage there is a metric to measure that, and it is the cross-currency basis swap.
Suppose we see contagion in the European financial sector due to the looming energy crisis, do you think the Fed can open swap lines and FIMA repo facility (as they did during covid and GFC) with ECB to ease the dollar shortage? Also, to add further, can by any chance, if a big European bank goes down under, can we get jitters across the US banking system?
How does QT play into this? They can’t do QT with low liquidity, right? Will they back off this first or rate hikes?
Suppose we see contagion in the European financial sector due to the looming energy crisis, do you think the Fed can open swap lines and FIMA repo facility (as they did during covid and GFC) with ECB to ease the dollar shortage? Also, to add further, can by any chance, if a big European bank goes down under, can we get jitters across the US banking system?