Dollar rallies as risk-off mood continues
The dollar gained another 1.3% overnight as markets continue in a risk-off mood. In highly volatile markets, the Bloomberg Dollar Index hit a record high amid severe market uncertainty in all asset classes. Bond yields moved higher in a flight to cash (short-term money markets). The European Central Bank and other central banks and governments continue to cut interest rates and provide additional stimulus. European sovereign credit spreads narrowed for the first time in weeks. FX market liquidity is tight.
March 19, 2020
EUR/USD 1.0802 GBP/USD 1.1616 USD/CAD 1.4481 AUD/USD 0.5797 USD/JPY 109.787 USD/CNH 7.1410 USD/ILS 3.6665 USD/MXN 24.2161 USD/CHF 0.9752 USD/INR 75.0850
The dollar is king amid continued panic in global financial markets. The dollar gained for the eighth straight day, and the dollar index (DXY) stands at its best level since December 2016. Global equity markets are mostly in the red. Countries suffering the most are those with large current account deficits – Latin American countries, India, Indonesia, the UK and Canada, and large commodity exporters – Australia, Canada, South Africa, and Brazil.GBP
The UK pound reached another fresh low at $1.1476, but has rallied since and now sits close to last night’s closing level near $1.16. The pound and the UK have been particularly vulnerable to the disruption in financial markets, as their economy is so dependent on the financial sector and its important role in global financial markets. It also suffers from twin budget and current account deficits, making it dependent on capital inflows.EUR
The European Central Bank announced a 750 billion-euro debt-buying program to provide liquidity and to maintain low borrowing costs. The euro still dropped over 1% overnight and most European equity markets are in the red.CAD
The USD/CAD reached a fresh high at C$1.4667 before dropping below C$1.45 amid a reversal higher in oil prices. The Bank of Canada is expected to cut Canada’s interest rate to near zero shortly.ASIA/PACIFIC
The USD/JPY currency pair moved higher for the third straight day and touched ¥110 for the first time in a month. The Bank of Japan made several announcements, including the buying of JGBs with maturities up to 25 years, supplying short-term funds to markets which will be shut for a local holiday, and buying a record amount of Japanese equity ETFs. The yen’s role as a safe-haven currency has, at least temporarily, taken a back seat to the overwhelming demand for the US dollar against all currencies.
The Chinese yuan sold off aggressively with the USD/CNY breaking higher to 7.12, its highest level since last September. However, compared to other currencies, its relatively firm and stable. China’s central bank has eased less aggressively than its peers, which has supported its currency.