Dollar on track for biggest weekly fall in a decade

The dollar was on track for its biggest weekly decline in more than a decade on Friday, as trillions of dollars worth of stimulus efforts by governments and central banks helped temper a rout in global markets triggered by the coronavirus pandemic.

The dollar had been riding high in March amid a drive for dollars by investors trying to get their hands on the world’s most liquid currency, and one considered a safe haven.

But big government spending pledges, including a $2.2 trillion U.S. package, and co-ordinated efforts by central banks around the world to increase the supply of dollars have supported a rally in other major currencies.

An unprecedented jump in U.S. jobless claims on Thursday underscored the coronavirus’s impact on the country’s economy, further weakening the dollar.

The dollar consolidated losses on Friday, edging up 0.2% on the day against major currencies, but was still on course for a near 3% fall for the week – its biggest decline since May 2009.

The swing underscores the currency market’s volatility after the dollar index last week racked up its biggest weekly gain since the financial crisis.

“The sharp reversal of the US dollar yesterday was clear evidence that the deluge of measures from the Federal Reserve to address dollar liquidity problems were finally becoming more successful,” said analysts at MUFG in a note.

“While we believe the ultimate direction of the dollar following this crisis will be down, we can’t be complacent in assuming this is now under way. That would be premature … We need to wait and see before a trend of USD weakness becomes established.”

Against the yen, the dollar fell 0.7% on Friday to 108.855 yen, as Japanese investors and companies repatriated funds before their fiscal year ends next week.

The euro ticked down 0.2% to $1.10080 but was still on track for an almost 3% gain over the dollar this week.

The dollar barely moved versus sterling and the Australian dollar as they consolidated the week’s gains.

But the dollar was up more than 1% against the export-exposed Norwegian crown and South African rand.

The dollar funding squeeze in the interbank market has abated considerably this week. Currency basis swap spreads, the premium investors need to pay over interbank rates to fund dollars through foreign currency swaps, fell considerably.

“Now that the surge in demand for dollars overseas has been met by the Fed’s new improved swap lines, economic and medical fundamentals are taking over,” said analysts at BDSwiss in a note.

Brexit: Pound rallies one per cent against dollar after May wins confidence vote

The pound has rallied against the dollar after Theresa May won a crucial vote of confidence in her leadership, thwarting plans by Tory Brexiteers to remove her as prime minister.

It jumped to $1.2672 as it emerged that enough Conservative MPs had supported their leader to see off a leadership challenge on Wednesday evening, before falling to $1.2605, still 1 per cent up on the day.

It had slumped to $1.2562 when markets closed on Monday, its lowest level since April 2017, after Ms May announced a parliamentary vote on her Brexit deal would be delayed.

However, the pound remains low against the dollar compared to recent months, when anything between $1.30 to $1.27 has been normal.

The pound also closed on Wednesday against the euro at €1.1110, up from €1.1059 at the beginning of the week, but low compared to the roughly €1.15 seen during November.

Ms May won the confidence vote by 200 votes to 117 – with just under two thirds of Tory MPs deciding to back her leadership.

The secret ballot had been called earlier on Wednesday after Sir Graham Brady, the chairman of the 1922 Committee of Conservative backbenchers, announced he had received the 48 letters from MPs needed to trigger a vote.

Dollar slips on $2 trillion US plan, ‘riskier’ currencies gain

The dollar slipped on Wednesday after U.S. politicians agreed a $2 trillion stimulus package that steadied money market nerves and prompted investors to buy back into ‘riskier’ currencies.

The export-exposed Australian dollar and Norwegian crown made sharp gains, while sterling also rallied from the lows of recent weeks, which were precipitated by a scramble for dollars.

Panicked investors fearful about the coronavirus pandemic had liquidated almost everything for U.S. dollars, with the world’s most liquid currency seen as a haven in times of crisis.

U.S. Senate majority leader Mitch McConnell announced a breakthrough on a package to shield the world’s largest economy from the economic fallout of the outbreak. It will be put to a vote on Wednesday.

“We are seeing the most oversold currencies bought back on the back of the stimulus package,” said Kenneth Broux, FX strategist at Societe Generale.

“The pandemic is still spreading and policymakers have put all their chips on the table. We will have to wait now to see how things will pan out,” Broux added

The dollar fell against a basket of currencies, last down 0.2%.

Among the gainers were the Australian dollar, Norwegian crown and British pound, all up around 1%.

The euro was last up nearly 0.3% versus the greenback after losing some of its early gains, changing hands at $1.08145.

The dollar barely shifted against the Japanese yen and Swiss franc, both also seen as safe havens.

The U.S. stimulus follows coordinated action by central banks around the world to boost the supply of dollars in an attempt to ease stress in money markets.

Expected price swings on some of the world’s most actively traded currencies retreated, with implied volatility on one-month euro-dollar and pound-dollar options falling.

But there was no similar swing in cross-currency volatility in the Japanese yen versus the dollar, which analysts said reflected Japanese investors still struggling to snap up U.S. dollars ahead of the country’s fiscal year end next week.

“There’s a lot of reasons to believe that we’re not out of the woods yet. People still feel that the downside risk is far more prevalent,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.

Dollar surges on funding crunch as virus roils global equities

The dollar rose against major currencies on Monday as fresh declines in global stocks and worries about tightening liquidity amid the worsening coronavirus crisis accelerated the flight to cash.

The dollar rose against sterling toward its strongest since at least 1985.

Against the antipodeans, the greenback rose toward a 17-year high against the Australian dollar and approached an 11-year peak against the New Zealand dollar as investors dumped riskier assets.

U.S. stock futures and oil prices came under further pressure early in Asian trading, which pushed the dollar higher as more people are placed under lockdown in an effort to contain the virus, traders said.

Investors are also hoping for big fiscal spending to mitigate the damage to the global economy, but uncertainty about the spread of the virus is likely to support the dollar in the future.

“We’ve moved from risk off to a phase where major players are competing with each other for the safety of holding dollars in cash,” said Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo.

“There are still a lot of investors who need to sell riskier assets, and they want to hold their money in dollars.”

The dollar rose 0.96% against the pound to $1.1559, approaching the strongest since at least 1985.

The greenback closed in on multi-year highs against the Australian and New Zealand dollars.

Against the yen, the currency rose 0.11% to 110.92.

Investors have been liquidating positions in safe-havens and other riskier investments to keep their money in dollars due to the uncertainty caused by the epidemic.

Major central banks have ramped up efforts to ease a global dollar funding crunch, but the U.S. currency remains in demand due to the high degree of uncertainty about the unknown flu-like virus.

The dollar has also surged against many emerging market currencies, highlighting the growing sense of risk aversion across the globe.

Early in Asian trading, the dollar rose to a record high against the Mexican peso.

So far this year the dollar is up 26% against Brazil’s real, up around 8% against the Korean won and up 15% against the Indonesian rupiah.

Republicans and Democrats in the U.S. Senate are trying to complete a deal on a $1 trillion-plus bill aimed at stemming the coronavirus pandemic’s economic fallout for workers, industries and small businesses.

But there was no sign of an overarching deal between negotiators, despite Republicans’ claims of bipartisan agreement on specific issues including unemployment insurance and small business assistance.

Nearly one in three Americans were ordered to stay home on Sunday to slow the spread of the disease, while Italy banned internal travel as deaths there reached 5,476.

U.S. President Donald Trump has approved disaster deceleration requests from New York and Washington, while St. Louis Federal Reserve President James Bullard warned unemployment could reach 30% unless more was done fiscally.

Global markets have been upended in recent weeks as the coronavirus spread from central China and governments responded with increasingly strict restrictions on travel and daily life, disrupting businesses and prompting consumers to stay at home and rein in spending.

The virus has now been reported in more than 100 countries and has claimed more than 8,000 lives.

Dollar set for biggest winning streak in nearly three decades on funding concerns

The dollar extended its gains on Thursday, putting it on its biggest rising run since 1992 against its peers, as demand for funding stayed high despite the recent burst of liquidity injection operations undertaken by central banks around the world.

Against its rivals, the dollar firmed 0.75% to 101.92, its highest level since March 2017. It has gained more than 7% in the past nine trading sessions.

On an eight-day rolling basis, it is on its biggest rise since September 1992.

Sterling teetered near its lowest point since at least 1985 against the greenback, while the Australian dollar tumbled to a 17-year low and the New Zealand dollar was at its weakest in 11 years as investors dumped riskier assets.

Even the euro, which briefly gained after the European Central Bank announced a 750 billion euro ($817 billion) asset-purchase programme in response to the coronavirus outbreak, turned lower in early London trading, heading towards a three-year low of $1.0778 hit last month.

“Central banks are stepping up their liquidity actions but it is not enough to make sure the dollar scarcity disappear and as a result the dollar continues to be the favoured currency across the board,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

The ECB’s purchase scheme, announced after an emergency meeting late on Wednesday, came less than a week after policymakers launched fresh stimulus measures.

Though global central banks have pumped in billions of dollars in emergency liquidity injections in recent days and strengthened swap lines with some global central banks, dollar funding pressures remained exacerbated across the board.

Investors are selling what they can to keep their money in dollars due to the unprecedented amount of uncertainty caused by the epidemic, which threatens to paralyse swathes of the global economy.

Kit Juckes, a strategist at Societe Generale in London, said that though there has been an improvement in the front end of the dollar liquidity curve, longer tenor funding in some corners of the market remained high.

In New Zealand for example, one-year FX swaps remained at their highest levels in nearly two decades, according to Refinitiv data.

The broad rush for dollars has forced investors to unload Treasuries and other government bonds as well as gold in order to keep their money in cash dollars.

This has confounded many analysts because investors normally buy government debt and precious metals during times of uncertainty.

Elsewhere, the Swiss franc edged higher against the euro after the policy decision, as investors had expected the ECB to keep rates on hold, though the franc remained within striking distance of a July 2015 high hit overnight at 1.0532 francs per euro.

Dollar stands tall as coronavirus fears fuel rush for funding

The dollar extended its gains on Wednesday and hit new multi-year highs against both the Australian and New Zealand dollars, as companies and investors worried by the coronavirus outbreak rushed to the world’s most liquid currency.

As major currencies wilted against the greenback, the Norwegian crown hit a new record low of $10.4564., signs of stress was everywhere as global central banks resumed their efforts to keep money markets functioning normally.

The U.S. Federal Reserve said on Tuesday it would reinstate a funding facility used during the 2008 financial crisis to get credit directly to businesses and households.

Both the European Central Bank and the Bank of England are due to hold U.S. dollar auctions later on Wednesday, which are likely to be closely watched. The Swiss central bank will also meet and could direct further firepower at its economy.

“This is a story of a strong dollar. The Fed’s action was better than doing nothing, but at the same time the focus is on signs of when this crisis will end,” said Jane Foley, senior FX strategist at Rabobank.

“Everyone understands the shortfalls of central banks. They can’t actually physically get people back through the doors of shops.”

Markets have crumbled this month as investors liquidated nearly everything for cash – driving up the dollar’s value and the cost of borrowing the greenback abroad.

The U.S. dollar was last up nearly 0.5% against a basket of currencies, after hitting an almost three-year high in earlier trading. It has gained more than 5% over the past two weeks. The index rose about the 100 level for the first time since 2017.

Export exposed currencies fared particularly badly versus the greenback.

The Australian dollar sunk to a fresh 17-year low of $0.59215 on Wednesday, while the New Zealand dollar hit a decade low of $0.5850 cents.

Only perceived safe-haven currencies managed to hold their ground against a strengthening greenback with the safe-haven yen up around 0.2% to 107.42 yen while the Swiss franc up by a similar magnitude to $0.9598 francs.

“It all stems from a shortage of US dollars,” said Gunter Seeger, senior vice president in investment-grade fixed income at New York asset manager PineBridge Investments.

“People are very, very nervous,” Seeger said.

“Everyone’s nervous about the virus, about oil prices, about their job, about everything.”

Dollar stands tall as nervous investors stick with safety

The dollar stood tall on Tuesday, recouping losses against the yen and hitting new highs against riskier currencies, as nervous traders stuck with the most liquid currency amid very fragile sentiment.

Market liquidity was tight and investors remained very cautious after coordinated moves by central banks failed to quell anxiety about the coronavirus pandemic.

Investors are now waiting to see the scale of government fiscal responses to battle the economic fallout from the virus and limit the economic contraction.

Money managers and businesses are scrambling for dollars as the outlook grows darker by the day. China has reported a fresh rise in cases. Malaysia is preparing to enter lockdown amid ever tighter measures in Europe and the United States.

“The dollar can hold onto its gains as markets understandably remain very fragile, but when the dust settles, we think the dollar will end up a little lower,” ING analysts said, while adding that the best level for the dollar index would be between 99 and 100.

The U.S. dollar index on Tuesday rose 1% to 99.12, close to its recent high of 98.817.

The euro dropped 1.25% to $1.1041 while sterling sank to its weakest since September, down as much as 0.6% at $1.2192.

The dollar rallied 1% versus the yen to 107 yen, reversing much of its losses on Monday.

The Australian dollar, seen as sensitive to global growth due to the country’s link to commodities, fell 0.7% to a new 11-year low of $0.6065.

Volatility, which has doubled in forex markets in the space of a few weeks, has not been as pronounced in currency markets as it has in equity and bond markets, and analysts said that despite the poor liquidity and large moves, trading had been relatively orderly.

Investors are also shunning many emerging market currencies.

MSCI’s emerging market currency index dropped 0.3%, staying at its lowest level since late 2018. The Korean won hit its lowest since 2010.

Investors have taken central bank action from the U.S. Federal Reserve and policymakers in Japan, Australia, New Zealand and elsewhere, as insufficient given the pathogen’s breakneck spread across the world which has put many nations on virtual lockdowns.

Some analysts said the hasty moves may have backfired.

“Central banks are pressing the gas pedal to the floor. But the car is bogged down in a quagmire that is called coronavirus, so it won’t move forward,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

“Until the outbreak stops, for investors, it is time for patience.”

Dollar weakens after another surprise Fed rate cut

The dollar fell against a broad range of currencies on Monday after the U.S. Federal Reserve made another surprise interest rate cut and major central banks took steps to relieve a shortage of dollars in financial markets.

The U.S. Federal Reserve cut rates to a target range of 0% to 0.25% and said it would expand its balance sheet by at least $700 billion in coming weeks.

Five other central banks also cut pricing on their swap lines to make it easier to provide dollars to their financial institutions facing stress in credit markets.

The moves come as policymakers respond to a brutal months-long sell-off in financial markets due to worries about the economic impact of the global spread of the coronavirus.

“It’s a modest negative reaction for the U.S. dollar. The Fed moved a little sooner and a little more aggressive that some thought,” said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

“This cannot prevent the economic fallout from social distancing (used to slow the coronavirus). That will require some fiscal spending and something from the government to make sure small companies are funded.”

The dollar fell 1.5% to 106.35 yen early on Monday in Asia in reaction to the Fed’s move, which was announced on Sunday evening U.S. time.

The greenback also fell 0.9% to $1.2405 per British pound.

Against the euro, the dollar slid 0.3% to $1.1153.

The dollar fell 0.3% to 0.9507 Swiss franc.

The Fed, the Bank of Canada, European Central Bank, the Bank of England, the Bank of Japan (BOJ) and Swiss National Bank also agreed to offer three-month credit in U.S. dollars on a regular basis and at a rate cheaper than usual.

The move was designed to bring down the price banks and companies pay to access U.S. dollars, which has surged in recent weeks as a coronavirus pandemic spooked investors.

The Fed had already cut interest rates by half a percentage point on March 3 at an emergency meeting, the first emergency cut since the financial crisis in 2008, but that move failed to stem market volatility.

The Fed’s move on Sunday U.S. time was likely aimed at staving off what had the potential to be another volatile week in financial markets, analysts say.

However, U.S. stock futures plunged after the rate cut, suggesting investors remain nervous.

Later on Monday, China will release several important economic indicators that should reveal the scale of damage caused by coronavirus, which emerged in the central Chinese province of Hubei late last year.

The Fed was originally scheduled to announce a policy decision on Wednesday, and the BOJ holds a two-day meeting ending Thursday, and the pressure has been on central banks to do something to restore calm to financial markets.

Worries that travel restrictions and factory closures aimed at containing the coronavirus will cause a global recession have sent equities into a tailspin.

In the offshore market, the yuan edged up slightly to 7.0131 per dollar as traders awaited key Chinese economic data.

The Reserve Bank of New Zealand joined the global easing race with a cut of 75 basis points to its rates, while the Reserve Bank of Australia added A$5.9 billion to the banking system through market repo operations.

The New Zealand dollar fell 0.2% to $0.6045, while the Australian dollar fell 0.38% to $0.6164.

Investors stick with yen as recession fears grow; sterling slides

The Japanese yen clung to its recent gains on Wednesday as worries about a global economic downturn grew, while sterling slumped on British Prime Minister Boris Johnson’s move to limit parliament’s opportunity to derail his Brexit plans.

Two-year U.S. government bond yields rose further above 10-year yields, a deepening of the so-called inversion of the yield curve that many see as a harbinger of a recession. Investors worry the trade conflict between the United States and China could tip the world into an economic slowdown.

The yen stood at 105.78 yen per dollar, unchanged on the day but close to the 7-month high of 104.46 yen hit on Monday.

“Much if not all of the decline in dollar/yen is simply down to markets becoming more risk averse,” said Adam Cole, currency strategist at RBC Capital Markets.

Cole said, however, that if the outlook for the global trade conflict improves and risk appetite recovers, he expected the dollar to “grind higher” against the yen as Japanese investors continue to buy higher-yielding dollar assets without hedging the currency risk, which would support the greenback.

The dollar index, which measures the U.S. currency against a basket of currencies, rose marginally to 98.091.

Sterling skidded more than 1% against the euro and dollar on media reports of Boris Johnson’s plans.

A government source said the prime minister, who has vowed to take Britain out of the EU without a divorce deal if necessary, would set an Oct. 14 date for the Queen’s Speech – the formal state opening of a new session of parliament.

That would effectively shut parliament from mid-September for around a month and reduce the parliamentary time in which lawmakers could try to block a no-deal Brexit.

Sterling was last down 0.7% at $1.2198 and 0.7% lower versus the euro at 90.93 pence, just off the day’s lows.

Elsewhere, weaker risk appetite weighed on the Australian and New Zealand dollars, which tend to perform well when investors buy into riskier assets.

The Aussie has been on the back foot since Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said on Tuesday that a weakening the currency was supporting the economy and that further falls would be beneficial.

The Aussie had fallen to a more than decade-low of $0.6677 early in August. On Wednesday it stood at $0.6724, down 0.1% on the day while the kiwi was 0.3% lower at $0.6341.

The Chinese yuan edged lower to 7.1703 in offshore markets, not far from the record low of 7.187 it touched on Monday.

Euro/dollar was little changed, trading at $1.1091 with little in the way of new economic data scheduled for Wednesday or developments to spark bigger moves.

Analysts at ING said positive news in Italy, where the 5-Star Movement and the opposition Democratic Party appear on the verge of agreeing a governing coalition, would not help the euro significantly.

“Instead the escalation in trade wars merely looks to extend the slow-down in manufacturing, depressing European growth still further. Like all activity currencies, the EUR looks soft and could break down to new lows at any time. EUR/USD support at $1.1025/50 looks vulnerable,” they said.

Yen rises as investors flock to safe-haven assets

The Japanese yen rose and 10-year Treasury yields fell on Tuesday as investors fled to safer assets amid worries the U.S.-China trade conflict would get worse, days after both sides announced new tariffs.

On Friday, China said it would increase tariffs on $75 billion worth of American goods. The United States retaliated by saying it would raise existing tariffs on $250 billion worth of Chinese goods to 30% from 25% on Oct. 1.

U.S. President Donald Trump also said he would tax another $300 billion worth of Chinese imports 15%, rather than the 10% he had planned. Those levies go into effect on Sept. 1.

On Monday, speaking on the sidelines of the G-7 summit of world leaders in France, Trump said Chinese officials had contacted U.S. trade counterparts overnight and offered to return to the negotiating table.

Trump’s comments sparked a wave of so-called risk-on trades, which initially boosted the dollar, weakened safe-haven currencies, and lifted stock markets.

However, doubts crept in after a Chinese Foreign Ministry spokesman said he was unaware that a phone call had taken place. The Commerce Ministry, which typically releases statements on trade calls, did not respond to a request for comment.

“The yen has been one of the best-performing global currencies this year and continues to benefit from building downside risks to global growth from escalating trade tensions,” said Lee Hardman, currency analyst at MUFG.

The Japanese currency was last up by 0.5% at 105.63 against the dollar. That wasn’t as strong as Monday’s gain, when it reached a three-year high, excluding the January flash crash. The yen has gained 3.6% against the dollars as the trade war drove traders to safe-haven assets.

The yen is “likely to strengthen further if tensions continue to build,” Hardman said.

Ten-year U.S. Treasury yields fell to 1.5097%, keeping the yield curve inverted as two-year yields traded at 1.5264%, a sign of an impending recession.

The offshore Chinese yuan, sensitive to U.S.-China trade disputes, was lower Tuesday after plunging to a record low of 7.1870 against the dollar the day before. It last traded down 0.1% at 7.1770.

China’s central bank lowered its official yuan midpoint to an 11-1/2-year low on Tuesday, but stronger than traders had expected.

The Turkish lira was down by 0.4% at 5.8452 against the dollar, having plunged Monday by more than 10% in a second flash crash this year.

Elsewhere, major currencies were relatively stable.

The euro was up by 0.1% at $1.1113 and the index that tracks the dollaragainst six other currencies was l down 0.2% at 97.898.

The pound was up 0.2% at $1.2242 and 0.1% against the euro at 90.765 pence.