The dollar weakened for most of the day as stocks gained in N.Y., except for the 30 minute period following the surprise announcement from the Swiss National Bank (SNB) regarding its intervention policy. USD/CHF rose about 300 pips in the 30 minutes after the announcement at 09:00EDT (when the SNB said it would weaken the franc) and no doubt that banks and dealers had to re-adjust their positions after the surprise. The SNB now becomes the first Central Bank to explicitly admit to a policy of currency intervention as a means to support its economy via the export sector.

Jana Randow had a very interesting Bloomberg article today, in which she makes the case that the ECB's de facto borrowing rate is actually far below its main policy rate, which is currently 1.50%. According to the article, Trichet is allowing the ECB’s deposit rate (0.50%), which lenders earn on overnight deposits with the central bank, to usurp the benchmark refinancing rate and become the main driver of short- term borrowing costs.

The euro overnight index average, or Eonia, fell to 0.85% yesterday, 65 basis points below the minimum bid rate and just 35 basis points above the deposit rate. The Eonia rate averaged 106 basis points above the deposit rate in the seven years before the ECB started providing unlimited liquidity in October.

The policy removed the need for banks to borrow in the money market to meet their reserve requirements.

Unlimited cash “results in refinancing costs for banks well below the current benchmark interest rate,” ECB council member Axel Weber said on March 5. “We expect banks to pass this on to consumers and companies to stimulate the economy.”

Six month Euribor, the rate banks pay on the interbank market to borrow euro’s, dropped to a record low of 1.79% today, 29 basis points above the minimum bid rate and just 129 basis points above the ECB's deposit rate (its real borrowing cost). Libor for pounds with a 6-month maturity was 2.07% or 179 basis points above the BoE’s main rate while 6-month dollar Libor was 1.90%.

Trichet hasn’t ruled out further rate cuts. The ECB has “not decided ex-ante that the present level was the lowest,” he said during a press conference in Vienna today. Still, “we are at very low rates.”

However, some officials are hesitant to go much lower. There is “no reason to see the refinancing rate below 1%,” Weber said on March 10. “I also see a problem with lowering the deposit rate to zero. I would prefer to leave it at 0.5%.”

While the Federal Reserve is aggressively pursuing what Bernanke has referred to as credit easing and the BoE moves headlong into printing new reserves in order to purchase U.K. gilts, the ECB for now is content with its efforts on providing unlimited liquidity to banks as a way to combat what's been called the worst financial crisis since the Great Depression.

Trichet said on March 5 the ECB will provide these funds until at least the end of the year.