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Dow Jones Surge, US Dollar Drops as Fed Unleashes Huge Liquidity Pump

Dow Jones Surge, US Dollar Drops as Fed Unleashes Huge Liquidity Pump

2020-03-12 17:15:00
Justin McQueen, Analyst
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US Dollar Analysis & News

  • Stocks Soar on Fed Liquidity Pump
  • Federal Reserve to Provide $1.5trillion Worth of USD Liquidity
  • USD Pulls Back from Intra-day Highs

Global Stocks Surge as Federal Reserve Unleashes Huge Liquidity Pump

The New York Fed have announced that it will provide $1.5 Trillion worth of dollar liquidity, which will take shape via a $500bln 3-month repo operation today and tomorrow, alongside a $500bln 1-month operation tomorrow. Alongside this, between March 13 and April 13, 2020, the Fed will conduct purchases across a range of maturities to roughly match the maturity composition of Treasury securities outstanding. In reaction, the US Dollar has pulled back with US equities bouncing off intra-day lows.

That said, questions will remain as to whether this will ease concerns over the continued spread of the coronavirus, given that this seemingly only addresses the functioning of the funding market amid concerns over dollar liquidity, which had seen a widening of cross-currency basis swaps. In light of this maneuver by the Fed, cross-currency basis swaps will compress and thus reduce concerns over access to dollars eases, prompting a pullback in the greenback. However, eyes will be on the number of virus cases in the US as well as the Trump Administrations response and thus challenges will remain for global equities.

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Dow Jones Price Chart: 1-Minute Chart

Dow Jones Surge, US Dollar Drops as Fed Unleashes Huge Liquidity Pump

Source: IG Charts

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

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