LIBOR definition, how does it effect the Forex Markets ?

Received from the Daily and written in part by Eric Fry

“The signs of credit distress are increasing.

One of the most telling forms is the direction of LIBOR interest rates. LIBOR stands for “London Interbank Offered Rate.” It is the rate at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank lending market).

In most circumstances, LIBOR rates track short-term Treasury rates. But in the midst of crisis conditions, LIBOR rates tend to spike, while Treasury rates fall. That’s exactly what happened during the credit crisis of 2008.

During the last few weeks, LIBOR rates have been on the rise once again. They have not risen high enough to sound a distress signal, but they have risen high enough to raise an eyebrow.

Let’s call it an early warning sign.

This warning sign is still flashing amber. Since our warning in early September, LIBOR rates have continued their steady upward climb, which indicates that credit stresses are increasing.

Meanwhile, government bond yields in the PIIGS nations of Portugal, Italy, Ireland, Greece and Spain are also surging higher — another clear sign of distress.”

I’ve been told that LIBOR is also referred to as the London Inter Bank Overnight Rate. The rate which banks loan each other funds.

Here is how LIBOR is described by Wikipedia; The LIBOR rate is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate (LIBOR, /ˈlaɪbɔr/) Banks borrow money for one day, one month, two months, six months, one year etc. and they pay interest to their lenders based on certain rates. The LIBOR figure is an average of these rates. Many financial institutions, mortgage lenders and credit card agencies track the rate, which is produced daily at 11 a.m. to fix their own interest rates which are typically higher than the LIBOR rate. As such it is a benchmark for finance all around the world.

I hope the above currency trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.