USD Smashed With More FOMC Stimulus
USD has been getting slammed in recent trade, giving up all of its daily gains and some. DXY has slipped from near 100 highs to below 99 in recent trade. Earlier in the day, USD had been performing well, with some analysts saying that USD was a buy in month-end flows.
For context; At the end of the month, markets can move in seemingly odd ways. That is because big asset managers and funds often “rebalance” their portfolios towards the end of the month; sell a little of this, buy a little of this etc. to fulfill their portfolio requirements. These flows coming through can buffet markets in unpredictable, choppy ways. In times like this, markets often stop trading technically, so I would suggest being more patient than usual is the best strategy.
So why have all of these gains been given up?
One word. The FOMC!!
In a statement in the mid-European afternoon, the FOMC announced that foreign central banks will be able to exchange US treasuries for USDs. The repo arrangement would continue for at least 6 months, and is designed to increase the availability of USDs in international financial markets.
Essentially, this is the Fed’s latest attempt to flood the market with dollars, thus weakening USD vs. its peers. Since the announcement, DXY has fallen roughly 60 pips.
Elsewhere, we have had a smattering of US data points, to which the USD has reacted very little.
Firstly, we had March Chicago PMI data today, which came in above expectations at a surprise 47.8 (vs expected 40). However, it is still in contractionary territory (a PMI reading below 50 suggests that a sector is in contraction).
Elsewhere, US March consumer confidence was also stronger than expected, coming in at 120, above expectations for 110 but still lower than last month’s 132.6 reading. However, the cut off date for the US consumer confidence survey was the 19th of March, before most of the US had gone into lockdown.
Though USD was unreactive to these data points, it is less likely to ignore those in the coming days. Tomorrow we have March ISM Manufacturing data, on Thursday we will get the next weekly jobless claims data and on Friday we have official March employment data plus March ISM Non-manufacturing data.
These widely followed releases could really put a downer on what has already been a ropey start to the week for USD!
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