Cross-currency basis
MarketsDefinition
Deviation from covered interest parity. Quoted in basis points. A negative EUR/USD basis means it costs European banks extra to borrow dollars via FX swaps — a sign of dollar shortage.
The 2008, 2011, and 2020 dollar crunches all showed extreme negative cross-currency basis. The Fed responded with FX swap lines to other major central banks — the most powerful, often invisible, monetary policy tool.
The 2008, 2011, and 2020 dollar crunches all showed extreme negative cross-currency basis. The Fed responded with FX swap lines to other major central banks — the most powerful, often invisible, monetary policy tool.
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