US Dollar Rallies As Equities Bounce Back, Business Optimism Jumps

The US dollar is rallying against several currency competitors on Tuesday as the stock market bounces back following Black Monday 2020. But is the spark triggered by central bank stimulus and expected cuts to interest rates at next week’s policy meeting or is it a dead cat bounce. Where does the greenback go from here?

Financial markets are trying to pare Monday’s steep losses. The Dow Jones, the S&P 500, and the Nasdaq Composite Index have all recorded 3% gains in the morning trading session. US Treasurys are also rebounding as the benchmark 10-year note recovered to 0.64% after slumping to an all-time low of 0.318% on Monday. Asian and European markets have trended higher, too, with increases as high as 2%.
Whether this is a dead cat bounce or an authentic rally after bottoming out remains to be seen, but the Federal Reserve and the White House are acting.
The Fed Bank of New York announced that it would offer up to $150 billion to cozy repo markets and lift its two-week repo operation offerings to $45 billion until Thursday. It said in a statement:

The moves are intended to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures. They should help support smooth functioning of funding markets as market participants implement business resiliency plans in response to the coronavirus.

This comes after the Eccles Building imposed an emergency 50-basis-point cut. According to the CME Group FedWatch tool, the market is anticipating another rate cut during the March Federal Open Market Committee (FOMC) by as much as 0.5%.
News broke on Monday night that President Donald Trump is considering a payroll tax cut and other stimulus measures to fight the economic fallout from the coronavirus. Officials say, however, that nothing has been set in stone and the administration is considering all options to help American workers.
On the data front, the National Federation of Independent Business (NFIB) business optimism index edged up from 104.3 in January to 104.5 in February. A plethora of inflation numbers will be released for the remainder of the week.
The US Dollar Index surged 1.02% to 95.86, from an opening of 95.34. The index, which is a measurement of the greenback against a basket of currencies, is down 0.5% year-to-date.
The USD/CAD currency pair rose 0.04% to 1.3710, from an opening of 1.3703. The EUR/USD tumbled 0.66% to 1.1364, from an opening of 1.1444.

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

Leave a Reply

Your email address will not be published. Required fields are marked *