Currency markets finally stole the spotlight from stock markets yesterday as the greenback exploded higher. Demand for the buck was rampant as the trade-weighted dollar index (DXY) leaped above the 100 level for the first time since early 2017.
Global demand for the US dollar has been rising in tune with the lack of appetite to hold riskier assets such as commodities (oil and copper – both related to global growth), stocks and high-risk corporate and government debt. As participants liquidated the above asset holdings, the demand for dollars increased.
The pound was one of the main victims in yesterday’s rout. London’s presence as a home for a large collection of financial institutions helped fuel the sell-off as they flocked to hold USD denominated cash. While markets remain so volatile cash will remain king and could result in more upward pressure on the US dollar. The cable rate (GBPUSD) crashed to 35-year lows, reaching the $1.14 handle in late European dealing. GBPEUR was not immune to the mayhem, it fell over 3-cents at one point, down to the €1.06 handle. Sterling traders and dealers will be donning their helmets from their home offices today as they wait to see whether the onslaught continues.
Overnight the European Central Bank has announced the recommencement of quantitative easing. They have pledged €750-billion towards purchasing corporate and government bonds. Down under the Reserve Bank of Australia has slashed rates to 0.25% and began QE for the first time. The Aussie dollar is trading sharply lower to the tune of 1.5%.
We’re expecting another volatile day across financial markets. If the recent moves, across any currency, are impacting your business and its profit margins, please get in contact to discuss ways to mitigate the huge risks which are currently surfacing.
8:13am, March 19th 2020
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