Greenback Dominates as Pandemic Worries Grow
MARCH 12, 2020
The U.S. Dollar jumped overnight with global markets down and uncertain over how the coronavirus situation will affect the economy and health of the world moving forward.
Clearly, we are now seeing aggressive measures from governments and institutions to prevent further spread as this is now a global pandemic. Travel restrictions and cancellations are now part of the equation and we are at the mercy of health authorities to figure out when things can normalize. Meanwhile in China, there are some signs of recovery and some people are expected to go back to work. A revamp in the world’s second largest economy is needed to revitalize activity overall.
All assets are suffering, and currencies bled plenty against the buck, with the Japanese Yen being the one safe-haven exception that climbed instead. On the other hand, the Mexican Peso finally hit its worst level on record after oil continued to sink further and the country is faced with the virus and a huge border crisis. At the time of writing, European Central President Christine Lagarde was explaining in her press conference that the virus efforts will require cooperation between all institutions and governments.
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The Euro fell and the European Central Bank decided to help markets, but did not go into negative interest rate territory. The ECB left rates untouched, boosted quantitative easing and liquidity, added temporary capital and relief to banks by letting capital ratios to run lower. Every tool they have is being used to minimize the negative impact from the coronavirus, but Lagarde is asking governments to strengthen their own measures or the economy could go to recession. While the shared currency did not rise, it looks likely to maintain some of its value as this looks like the right course of action.
Sterling sank by another 1.5% overnight as the easing measures start being implemented. With markets doubtful and little guidance since companies are making their own contingency plans, expect the buck to continue its momentum. Anything can change at any moment, but now we all must hope that overall we see improvement day by day as the globe unifies to act swiftly.