On Thursday (March 19) Asian session, the currency market once again rioted: the us dollar rose sharply in the short term, the Australian and New Zealand dollars fell 300 points at one point, the British pound resumed its decline after falling 5% the previous day.
The recent dollar bull market burst, with the U.S. index hitting 100 and 101 in a row on Wednesday, soaring to a three-year high as high as 101.75 before closing below 101. Asian city on Thursday, the us index on the basis of the previous day’s rise further, trading around 101.35.
The dollar surged across the board, hitting multi-year highs against several major currencies as companies and investors rattled by the coronavirus outbreak rushed to the perceived safety of the greenback.
“Just as consumers sweep the grocery store shelves, investors and businesses are snapping up the dollar because of its high liquidity,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.
“The fed has made this very, very bold move,” said Paul Mackel, head of emerging markets fx research at HSBC. [but] if you look closely, the market reaction is uneven or not very strong. Especially in the currency markets, dollar financing is still pretty tight.”
The dollar is getting support for a variety of reasons, he said, from investors fleeing other volatile assets to a flight to safety in the U.S. currency to companies that are the king of cash in turbulent times. “Every time there is a big enough financial shock, the global competition for liquidity and reserve currencies, the dollar, intensifies.”
George Saravelos, head of currency research at Deutsche Bank, said: “We underestimated the severity of dollar funding pressures. “We are concerned that addressing the dollar shortage may be more difficult than policymakers think.”
He pointed out that underestimate the dollar shortage is the main cause of no understand the core characteristics of today’s global value chain, the dollar remains the global credit pillars, once the crisis, all asset prices, and a liquidity crisis may occur, but the dollar will not because everyone will go to rob the dollar, some people hoarding dollars, stay up, and the dollar has become very scarce, with the mask after the outbreak of the situation.
While the us dollar soared in the short term, the Australian dollar and the New Zealand dollar were hit by a severe blow, on Thursday in the Asian session, the Australian dollar/us dollar at one point accelerated down to 0.5506 level, from the day’s high of 0.5815 down more than 300 points, more than 3% on the day.
At the same time, the NZD/USD plummeted, at one point to the level of 0.5468, from the day’s high of 0.5748 fell 300 points, more than 3% on the day.
The European central bank, the Bank of England and the Swiss national bank all carried out dollar liquidity operations on Wednesday as part of the biggest co-ordinated central bank injection since the 2007-09 financial crisis.
The high demand for the auctions eased some tensions in the money markets, but some analysts said the swap lines between the fed and other major central banks may not be enough given the widespread dollar shortage.
Worse still was the pound, which plunged to its lowest level against the dollar in more than 30 years, with the exception of a brief fall in October 2016. It hit a low of 1.1461, its lowest level since March 1985. The pound resumed its slide on Thursday, hitting a low of 1.1477, not far from its overnight low.
“I’ve never seen sterling trade like this outside of Brexit,” said Nomura International Plc strategist Jordan Rochester. The market is not at all sure how long the economic hit will last.”
Phil McHugh, the chief market analyst at Currencies Direct, said: “Sterling has been sold off as the insatiable demand for liquid currency dollars continues and as the heavy selling has led to a scramble for the greenback, despite efforts by central Banks to curb the trend.”
If the near-” laissez-faire “approach of the UK and Sweden proves to be wrong, the pound and krona could face the worst possible outcome, according to Nord.
South Korea said on Thursday there was too much herding in the currency market. From a basic point of view, the currency market unilateral trend is excessive.