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US Dollar Gains As Federal Reserve Announces Unlimited QE

March 23, 2020 at 17:19 by Andrew Moran

Benjamin Franklin looks from a 100 dollar notesThe US dollar is gaining on a couple of major currency rivals to start the trading week, despite the Federal Reserve announcing a massive expansionary program to rescue financial markets. With volatility still plaguing equities, investors continue to dive into the greenback to shield themselves from the chaos. The buck may spike again as the federal government gets ready to pass a massive stimulus bill.

On Monday, the US central bank unveiled that it is prepared to execute asset purchases without any limits, abandoning its initial $700 billion QE limit from a week ago. The Fed noted that it is ready to take significant action “to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

Before the opening bell, the Fed revealed several programs to stabilize market turmoil. The Fed will be acquiring corporate bonds for the first time, purchasing these securities in secondary markets through exchange-traded funds (ETFs). It will initiate an unspecified lending program for Main Street companies. The Eccles Building will also erect a $300 billion Term Asset-Backed Loan Facility to ensure credit gets to employers, consumers, and businesses.

In a separate announcement, the New York Fed Bank confirmed it is buying $75 billion in Treasurys and $50 billion in agency mortgage-backed securities every business day this week.

The Fed said in a statement:

The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus.

While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.

The leading indexes erased their pre-market losses on the news, but then quickly returned to red territory. Investors are ostensibly waiting for Congress to pass its $2 trillion stimulus package that includes direct aid, corporate bailouts, and regulatory adjustments for the private sector.

While purchasing manager index (PMI) readings and housing data are on the schedule this week, the major report comes out on Thursday: initial jobless claims. The consensus is one million, but some analysts say it could top two million.

The US Dollar Index, which measures the greenback against a basket of currencies, tumbled 0.4% to 102.42, from an opening of 101.95, The buck recently enjoyed its best week since the financial crisis. The benchmark 10-year Treasury note slipped to 0.755%.

The USD/CAD currency pair rose 1.21% to 1.4529, from an opening of 1.4367. The EUR/USD advanced 0.56% to 1.0757, from an opening of 1.0764.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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