US Dollar Rips Higher as Dollar Funding Shows Distress Signal - US Market Open
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US Dollar Analysis & News
Global markets remain in freefall amid the ongoing spread of the coronavirus. Overnight, the World Health Organisation had labelled the virus as a global pandemic. Alongside this, US President Trump’s address had done little to provide confidence with the President stating that the US will suspend travel from the EU to the US for 30 days (does not apply to the UK), while also announcing relief measures. US equities hit limit down for the second time this week, while European equities have been posting double digit losses with Airliners among the underperformers.
Bond Markets Failing to Hedge Against Equity Declines
What has also become apparent in recent session is that while aggressive selling persists in equity markets, US Treasuries have also started to drift lower. The worry here is that with global bond yields falling to a record low, bond markets ability to hedge against equity drawdowns decline, particularly with central banks unwilling to move into negative territory in the case of the Federal Reserve. Therefore, overall risk will continue to be reduced amid the pick up in volatility and thus keeps the pressure on equity markets.
EUR:The European Central Bank left all of its interest rates unchanged Thursday. Markets had priced-in an additional 10bps cut to the deposit rate. The central bank also announced new liquidity measures, adding a ‘temporary QE envelope’ of EUR120 billion extra of bond buying until the end of 2020. The ECB also announced a new LTRO to provide additional liquidity until the next round of TLTROs are announced in June this year. It waits to be seen if the ECB has done enough to help stabilize an economy roiled by the coronavirus. (full reaction)
US Dollar: Stress in Dollar liquidity is beginning to creep up with Euro and Sterling Dollar FX swaps widening. Consequently, this signals that foreign investors are willing to pay a premium to gain access to dollar funds and thus a continued widening may see the US Dollar rip higher.
Economic Calendar (12/03/20)
WHAT’S DRIVING MARKETS TODAY
- “Bitcoin (BTC), Ethereum (ETH), Ripple (XRP): Cryptocurrency Carnage, Prices Down 20%+” by Nick Cawley, Market Analyst
- “FTSE 100 vs FTSE 250: What Outperforms When Bank of England Cuts Rates” by Justin McQueen, Market Analyst
--- Written by Justin McQueen, Market Analyst
Follow Justin on Twitter @JMcQueenFX
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