Forex News | Currency News by Forexlive

By Steven K. Beckner

(MNI) – In preparation for eventual reserve draining operations to
help withdraw monetary stimulus, the Federal Reserve Board moved Friday
to create a new facility which would enable financial firms with reserve
holdings at the Fed to convert those reserves into interest-earning
deposits.

The Fed Board amended its Regulation D, governing reserve
requirements of depository institutions, to authorize the 12 Federal
Reserve Banks to offer term deposits of varying maturities through a
Term Deposit Facility or TDF.

The TDF will be offering what amount to certificates of deposit to
banks and other eligible financial institutions, which do not include
government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie
Mac.

Fed officials have previously said they hoped to be able to have
the TDF ready to go for testing in the spring. The amendments will be
effective 30 days after publication in the Federal Register, expected
“shortly.”

The Fed gave no timetable for actual implementation of the TDF and
emphasized that its announcement of the enabling regulatory amendments
has no near-term monetary policy significance. While anticipating that
small amounts of term deposits could be offered before long, actual TDF
offerings in size would await the Federal Open Market Committee’s
judgment as to when it will be “appropriate” to begin tightening
monetary policy.

The FOMC, on Wednesday kept the target for the federal funds rate
between zero and 25 basis points and reaffirmed its expectation that it
will stay “exceptionally low” and “for an extended period,” with the
length of that period depending on such things as the pace of economic
growth, rates of resource utilization, inflation and inflation
expectations.

The Fed said that the TDF will be just one tool the Fed will use to
drain reserves as part of an eventual tightening of monetary policy. It
anticipated the TDF will help “tighten the link” between the interest
paid on excess reserves (IOER) and the federal funds rate and other
short-term rates.

The Fed made clear that, when the time comes, it will pre-announce
the amount of TDF offerings, as well as other terms and conditions and
indicated the amounts offered will depend on Fed decisions about the
appropriate amount of reserves that need to be drained to effectuate the
FOMC’s monetary policy decisions.

Market News International has been reporting for some time that the
Fed will likely drain reserves in advance of actual rate hikes and that
it will announce the amounts of reserve drains in advance.

The TDF will be just “one tool” the Fed can use in those eventual
reserve draining operations, the Fed said. Although it did not mention
them, reverse repurchase agreements, which are already being tested, are
the other major instrument that is expected to be used to drain sizable
amounts of reserves to reverse the Fed’s quantitative easing policies
and help lift money market rates.

The Fed is also paying interests on reserves, which the central
bank hopes will enable it to set a floor under the funds rate and
incentivize banks to hold reserves rather than expand lending overly
aggressively — not an issue now with bank credit having fallen for more
than a year.

Although the TDF would not shrink the balance sheet, the Fed
considers that the TDF would “drain reserves” in the sense that the
amounts which banks place in term deposits would no longer be counted as
reserves in banks’ “master accounts” at the Federal Reserve Banks.

Term deposits could not be used to satisfy required reserve
balances or contactual clearing balances, are not considered “excess
reserves” and could not be used to clear payments or reduce daylight
overdrafts.

Although no final decision has been made on exact terms and
conditions, the Fed said it will likely offer varying maturities under
six months at rates that do “not exceed the general level of short-term
interest rates.”

The Fed took pains in its announcement to discourage speculation
that the Regulation D amendments constitute a monetary tightening
signal.

“Term deposits will be one of several tools that the Federal
Reserve could employ to drain reserves when policymakers judge that it
is appropriate to begin moving to a less accommodative stance of
monetary policy,” it said. “The development of the TDF is a matter of
prudent planning and has no implication for the near-term conduct of
monetary policy.”

“The amendments approved by the Board are a necessary step in the
implementation of the TDF,” the statement continued, adding that the Fed
“anticipates that it will conduct small-value offerings of term deposits
under the TDF in coming months to ensure the effective operation of the
TDF and to help eligible institutions to become familiar with the
term-deposit program.”

It said “more detailed information about the structure and
operation of the TDF, including information on the steps necessary for
eligible institutions to participate in the program, will be provided
later.”

-more-

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** Market News International **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$BR$]

Looks like it is going to be a very thin, whippy month-end Friday afternoon. We’ve been chopping around in volatile fashion all morning and it doesn’t look likely to settle down soon.

Bids are seen in the 1.3230/50 area on dips near-term while stop-loss sell orders are eyed around 1.3225.

A pretty disappointing afternoon for those expecting a major relief rally on a Greek bailout package. I fear we’ve already bought the rumor and we won’t see much topside action early next week at all…

It won’t do them much good, as the process is pretty much out of the control of Greek politicians and in the hands of the creditors.

Another interesting nugget in the poll, only 28% of Greeks favor the return of the drachma, showing most have no idea what is going on, but they are willing to overturn some cars all the same…

USD/JPY was knocked down earlier in the session on big selling from a dastardly US investment bank. It is now being bough back up by the other big US investment bank left standing. We’ve bounced to the 94.20s from earlier lows at 93.86 ahead of the fixing. The fixing took place somewhere in the 94.05 area.

94.30 and 94.60 area resistance now on rebounds. Stops are seen above the latter level.

EUR/USD is on the mend, rebounding from 1.3255 lows after a volatile month-end fixing.

Word that European finance ministers will meet on Sunday suggests to the market that the Greek bailout package will be finalized this weekend.

1.3315 offers are seen now on rallies with more toward 1.3340, where central banks are camped. We trade now at 1.3300.

UPDATE: Fresh headlines in the Sunday meeting. Ministers will likely be able to give a figure for Greek loans on Sunday through 2012. The decision is unlikely to need further endorsement, an EU spokesman says.

WASHINGTON (MNI) – The following is a text released Friday by the
New York Federal Reserve:

FRBNY Reverse Repurchase Program Form Master Repurchase Agreement
(MRA) for Money Market Mutual Funds, including Applicable Annexes

This agreement sets the legal terms and conditions under which
FRBNY and its money market mutual fund counterparties may undertake
reverse repurchase transactions. The base form is the Master Repurchase
Agreement published by SIFMA, available here:

http://www.sifma.org/services/stdforms/pdf/master_repo_agreement.pdf.

Following the SIFMA form format, Annexes I and II add the
customized terms and conditions for the FRBNY RRP Program, including the
auction format through which FRBNY intends to award transactions, and
provides the name and addresses for communications between the parties.
Annex VII, also following the SIFMA form, provides additional terms and
conditions that may be unique for registered investment companies. We
anticipate that the standard SIFMA Annexes III through VI are
inapplicable.

** Market News International Washington Bureau 202-371-2121 **

[TOPICS: M$U$$$,MGU$$$,MMUFE$,M$$CR$]

The eurogroup finance ministers will in fact meet at 14:00 GMT in Brussels on Sunday to announce details of the EU-IMF bailout and have a press conference after the meeting. The news should be a modest plus for the euro, though it is not entirely unexpected.

EUR/USD trades at 1.3275.

Looks like the market got itself a bit long ahead of the fixing amid earlier rumors of 4 yards of demand for month-end. Looks like they bought a wee bit more than that and now need to get back to square ahead of the weekend.

EUR/USD triggered stops below the 1.3280 level and now trades at 1.3263.

One minute the interbank brokers are looking for buy orders to offset their sell orders, the next minute the imbalance goes the other way. Could be a very sloppy month-end fixing.

In USD/CAD, they are now see selling after having more buyers than sellers just minutes ago…

…but dealers continue to note demand for AUD at the upcoming 15:00 GMT fixing. AUD dipped to 0.9080 a short while ago before rebound to the present 0.9300 level.

Demand is rumored in USD/CAD as well.

USD/JPY selling is rumored at the fixing, traders say.

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