The dollar was by far the week’s strongest performer, rising an average of 4.8% against the other major currencies
To a great extent the rush for the dollar is a reflection of the huge uncertainty posed by the pandemic. Despite efforts by the world’s central banks to reassure markets with cheap and plentiful money, investors crave the safety and liquidity that only the US Treasury bond market can provide. Although the Federal Reserve has made swap arrangements to provide dollars to the central banks of Australia, Brazil, South Korea, Mexico, Singapore, Sweden, Denmark, Norway and New Zealand, allowing them to tap up to $450 billion, more is expected to be needed as the scramble for cash continues. Beyond extending the swap facilities there is no evidence yet of direct central bank intervention to sell the dollar but the possibility cannot be ruled out.
Meanwhile, the Fed has lowered its Funds rate – for the second time in March – to 0-0.25% and the Senate has approved a second stimulus bill. An even bigger stimulus package is coming down the line, said to be worth $1.3 trillion. Under normal circumstances such measures would hurt the currency. These are not normal circumstances.
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