Monex: Dollar blijft dominant op valutamarkten

Monex: Dollar blijft dominant op valutamarkten

Valuta Britse pond Dollar Euro
Ranko Berich_main.jpg

Hieronder volgt een commentaar in het Engels van Ranko Berich, Head of Research bij Monex Europe op de koersbewegingen van de Amerikaanse dollar, euro en het Britse pond.


The Fed’s increased monetary stimulus and liquidity provisions did little to blunt the dollar yesterday as risk assets continued to sell-off and investors continued to seek safety in the greenback and other haven currencies such as JPY and CHF. US equities set off the level 1 circuit breaker again yesterday, in record time, to mark the third time trading has halted in american equities in 6 sessions, while the S&P 500 was close to setting off level 2 missing by just 0.5%. The rout in equity markets was the largest since Black Monday in 1987, dwarfing what was seen last Thursday in the volatile session, sparking discussion whether benchmarks should be closed after trading in certain sub-sectors in Europe was halted. The Philippines chose not to take any risks, shutting down its financial markets in this environment. The flight to safe assets has kept the dollar well supported, however, the DXY index is a poor measure of representation in this market due to its high USDJPY and EURUSD weighting. Yesterday, the overnight generalised collateral rate spiked as high as 1.6% - substantially higher than the Fed’s new target funding range of 0-0.25%. The move was reminiscent of what occurred in Q3 2019, forcing the Fed to embark on Open Market Operations for the first time in a decade to supply liquidity to primary dealers. The overnight rate soon fell back to a more amicable 0.3% after the Fed announced a $500bn repo operation, with only $150bn taken up. The large offering by the Fed will continue today to pave cracks in the interbank. The takeup by eight major US banks, led by Morgan Stanley and JP Morgan, of the Fed’s discount window, is a prime example of this. Prior to the repo auction, major banks began to tap into the emergency loan window, not used since 2008, to try and shed the stigma around the instrument and restore confidence in the banking system. Normally, isolated usage of the instrument sparks balance sheet concerns among investors, but the synchronised usage by the largest banks in the world was designed to “reassure financial institutions of all sizes” that they can tap it too according to the Financial Services Forum. Today, the dollar exhibits a minor bounce against haven currencies such as JPY and CHF, while the euro, pound, Aussie dollar and Swedish krona also sit in the red. At the time of writing, S&P 500 futures point towards a 4% bounce upon opening, which is only normally after US benchmarks fell over 12% in yesterday’s session.


The euro managed a modest rally against the US dollar yesterday, which is in itself no mean feat given the prevailing atmosphere of broad demand for greenbacks. Eurozone leaders are expected to implement unprecedented travel bans today, suspending all travel into the Schengen area for non-EU nationals for 30 days. The fiscal policy response across euro will be closely watched over the coming days, after the Eurogroup of finance ministers reportedly considered using the European Stability Mechanism, a €410bn fund, to respond to the crisis. Ministers said they had already agreed on fiscal measures worth some 1% of GDP, and additional liquidity measures such as public guarantee schemes and tax breaks, and accepted the European Commission's recommendations to relax the eurozone’s budget rules. Various national leaders from nations including France, the Netherlands announced support measures, including €300bn in emergency lending provisions in the former.


Sterling continued to weaken yesterday and reached fresh lows against both the US dollar and euro, as US equity markets once again experienced historic losses and investors flooded into safe havens such as USD and JPY. Currency markets in general continued to trade on broad trends in risk appetite, as opposed to idiosyncratic factors. Boris Johnson outlined a significant step up in the UK’s measures to mitigate the spread of coronavirus by implementing enhanced social distancing advice closer to that taken by other countries. Schools are to remain open for now, however. This morning at 09:30 GMT, labour market data will be released for January. Given the late and rapid onset of the economic effects of the coronavirus outbreak in the UK, no sign of disruption should be apparent in the January data, and it is likely to have a limited market impact.