Equity markets got off to a strong start to start the day’s trade, with the US Dow Jones Industrials Average up over 200 points soon after the New York Stock Exchange open. Yet it remains clear that markets remain stressed as of late, with the US House of Representatives rejection of the Treasury bailout bill forcing deterioration in global credit markets. We see that overnight US dollar borrowing rates climbed to their highest levels in over seven years—emphasizing banks’ unwillingness to lend to one another. Such developments likewise make it expensive for forex traders to sell US dollars, and forex rollover rates remain far from normal through the day’s trade.

According to London Interbank Offered Rates, financial institutions are currently charging an average of 6.875 percent for overnight loans on the interbank markets—the worst levels in at least seven years. The net result is that borrowing costs in US dollars are actually above their European counterparts, and interbank traders are actually charging rollover spreads on EUR/USD-long positions.

Clear money market difficulties have led theUS Federal Reserve to increase liquidity provided to open markets, extending up to a staggering $225 billion in 84-day credit to ease end-of-quarter funding constraints. Such actions reflects the Fed’s belief that money market conditions continue strained despite its great efforts to relieve them, and it seems that central bankers are almost willing to take matters into their own hands if the US Treasury’s bailout does not come to fruition.

Despite the Fed’s efforts, money markets have since deteriorated and it is difficult to predict whether we can expect buy/sell rollover interest rate payments on forex positions to improve in the week ahead. As long as major financial institutions remain unwilling to lend to each other, forex market conditions may make for expensive rollover interest rate payments through even the most liquid of forex pairs.

David Rodriguez is a Currency Analyst at FXCM.