Tokyo: The dollar slipped on Tuesday on signs tight funding conditions are easing slightly after the US Federal Reserve pulled out all stops to supply much needed liquidity.
The Fed announced unlimited quantitative easing and programmes to support credit markets in a drastic bid to backstop an economy reeling from emergency restrictions on commerce to fight the coronavirus. “We seem to have got out of a phase where everything from stocks to safe assets such as bonds and gold were sold,” said Koichi Kobayashi, chief manager of forex at Mitsubishi Trust Bank.
“The dollar funding conditions are easing slightly, compared with a week ago, though I wouldn’t say things are normal. While the Fed is pumping dollars, we still need to wait and see if those money will flows to every corner of the economy.”
The dollar index lost about 0.5 per cent to 101.64, slipping further from Friday’s peak of 102.99, its highest level since January 2017.
Stop the cash hoarding
The Fed, which has already expanded its balance-sheet to a record level, undertook unprecedented measures to extend its “lender of last resort” power beyond Wall Street to Main Street and City Hall. It announced various programmes including purchases of corporate bonds, guarantees for direct loans to companies and a plan to get credit to small and medium-sized business.
The radical steps came after US money markets seized up as a broad set of market participants, from big multinational carmakers to small shop owners, hoarded dollars fearing a slump in cashflow during lockdowns in their countries.
While the Fed’s move is likely to mitigate the blow for many companies in the long-run, investors remained on edge amid uncertainty about the extent of the pandemic.
“The market is still nervous about possible moves to cash everything, including unwinding of existing derivative positions,” said Kyosuke Suzuki, director of forex at Societe Generale.
Asia heads up
According to AFP, Asian markets and crude prices surged while the dollar sank after the Federal Reserve’s unprecedented bond-buying programme. Traders gave a massive thumbs up to the US central bank’s pledge to essentially print cash in a move not seen since the global financial crisis more than a decade ago.
Equities in Asia flew out of the blocks with Tokyo ending the morning 6.7 percent higher. The Nikkei was given extra lift by a Bank of Japan decision to embark on its own massive bond-buying scheme.
Seoul was up more than 6 per cent, Hong Kong and Singapore each rose more than 4 per cent.
According to AxiCorp’s Stephen Innes, the region was waking up to “the most significant monetary experiment in the history of financial markets”.
“Asian investors like what they see from an all-in Fed, which is being viewed in a very impressive light for both Main and Wall Street, even as the US congress dithers.”