by Calculated Risk on 5/16/2010 04:33:00 PM

Note: here is the Weekly Summary and a Look Ahead (busy week)!

On the Libor and the Euro ...

From the Financial Times: Banks’ debt exposure fuels risk aversion

Concern about the exposure of European banks to the debts of weaker countries in the eurozone is ... increasing the amounts banks charge to lend to each other.

The London inter-bank offer rate, or Libor, has risen in recent weeks to its highest level since last August ... which is significant because the rate has served as a leading gauge of stress during the financial crisis.
excerpt with permission

The Libor has risen recently, but it is still very low (here is a graph from Bloomberg). The Libor is at 0.45%; the Libor peaked at 4.81875% on Oct 10, 2008.

The TED spread has increased too, but it is still very low at 30. This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is around 50 bps - so this is still below normal.

And from The Times: Euro heads for parity with dollar

THE euro is set to slide further and could be heading for parity with the dollar, analysts say. ... The euro fell to a 19-month low against the dollar of $1.23 on Friday night ...

Click on graph for larger image in new window.

Update: Oops. Chart was labeled backwards. There are 1.23 dollars per Euro.

The Euro has only been around since Jan 1999. The graph shows the number of dollars per euro since Jan 1, 1999.

There is nothing magical about "parity" except it makes a good headline - and would be a significant decline.