The US dollar is surging against nearly all major currency rivals on Thursday as investors seek shelter from the ocean of red ink flooding global financial markets. The greenback is rallying despite the Federal Reserve set to pump more than $1 trillion into the market amid the coronavirus outbreak wreaking havoc on everything and the oil price war just beginning.
For the second day in a row, the US central bank announced market interventions to stop the bleeding. It confirmed that it will unleash a $500 billion three-month repo operation, a $500 billion one-month repo operation, and one- and three-month repo operations of $500 billion every week. This is in addition to the more than $130 billion the New York Fed Bank revealed on Wednesday.
The Fed will also widen its $60 billion worth of Treasury purchases. Up until now, its fourth round of quantitative easing had been confined to short-term notes.
Experts are calling these actions the Fedâs âbig bazooka.â
The New York Fed said in a statement:
These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak.
Before the announcement, the Dow Jones Industrial Average was down as much as 2,200 points. After the news broke, the leading US stock index halved its losses. An hour later, the stock market was deep in the red again. As the Dow craters 8%, it is now set for its worst one-day plunge since 1987
Since the monetary easing failed to calm down the New York Stock Exchange, most investors anticipate the Eccles Building to cut interest rates at next weekâs Federal Open Market Committee (FOMC) meeting. The consensus just a few days ago was a 0.5% cut, but a growing segment of the market expects rates to go down to 0%. Last week, the Fed imposed an emergency cut of 50 basis points.
On the data front, the initial jobless claims fell to 211,000 in the week ending March 7, down from 215,000 in the previous week. Mortgage applications soared 55.4% as homebuyers took advantage of rock bottom rates. The February producer price index (PPI) slumped 0.6%, down from the 0.5% gain in January. On Friday, import and export prices will be released.
The US Dollar Index spiked on the Fedâs announcement, climbing 1.04% to 97.55, from an opening of 96.65. The benchmark 10-year Treasury note rose to 0.842%.
The USD/CAD currency pair advanced 0.45% to 1.3843, from an opening of 1.3780, at 19:10 GMT on Thursday. The EUR/USD tumbled 0.8% to 1.1182, from an opening of 1.1272.
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