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Main » 2020 » March » 18 » Dollar - Fed do no harm! Currency swaps the Fed strengthened the panic in the market of global funding and support for the "bears" on EUR
Dollar - Fed do no harm! Currency swaps the Fed strengthened the panic in the market of global funding and support for the "bears" on EUR


Exactly two days took the main currency pair to determine the direction of movement after sudden aggressive monetary expansion FOMC March 15th. The euro was rushed to the upper limit indicated in a previous materials $ 1,105-1,122 range, however, just as well as a reduction in the federal funds rate from 1.25% to 0.25% frightened the US stock market, large-scale operations the Fed swap with the leading central banks of the world have plunged in the whole Forex shock. 



According to the Federal Reserve Bank of Cleveland President Loretta Mester, voted against lowering borrowing costs immediately by 1 pp, when there are failures in the financial markets, the transmission mechanism of monetary policy is violated. Therefore, any reduction in rates will have a lesser impact on the economy than in normal conditions. Simply put, now the main task of the central bank is not to help, not hurt. To learn how you can hurt, knows Christine Lagarde, the incautious phrase which made the Italian bond yields soar to 1% in the early spring to 2.3%. Bloodless coronavirus Rome faced with the need to pay the debts of almost 2.5 times more than in the past. Spread betting with German counterparts widened to revive the rumors about the collapse of the eurozone and exert serious pressure on the euro.  


The dynamics of the yield of bonds of Germany and Italy

Source: Trading Economics.

US stocks have responded to the sharp decline in the worst sell-Fed since 1987, linking the aggressive actions of the regulator with its fears for the fate of the US economy. Similarly, the Fed's intention to prevent a crisis in the market of global finance by means of agreements on the mutual exchange of payment flows led to a sharp demand for greenbacks. Spreads on the basis of cross-currency swaps, which reflect the cost of borrowing in dollars abroad soared to multi-year extremes. The three-month rate for EUR / USD rose to 122 bps, a peak since 2011. 

When the global economy is on the verge of recession (Morgan Stanley predicts a reduction of global GDP in 2020 to 0,9%, Goldman Sachs - on 1,25%, S & P Global - 1-1.5%), and a storm on the stock market is not going to end, it is not surprising that investors are buying greenbacks. It is estimated the IMF, since the crisis in 2008 lending to foreign banks in dollars increased from $ 10 trillion to $ 12 trillion. In this case, if the Fed has provided resources through currency swaps developed countries, the emerging left out. But their markets faced a $ 60 billion outflow of portfolio investments from January 21.

Along with the high demand for the dollar as a funding currency, support for the "bears" for the euro has information about large-scale fiscal stimulus in the United States in the amount of $ 1-1.2 trillion. These are two tranches of $ 250 billion to pay for the Americans their checks about $ 100 billion in guarantees paid sick leave, and about $ 500 billion of assistance to small businesses. Due to these measures, States can stay afloat, and EUR / USD - continue in the direction of the peak of 1,085 and 1,075. True to start the "bears" need to go back to the support at 1,097 and take it by storm.


Source analyst LiteForex


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