The Financial Market’s Stress Is All About the Dollar – Forex Signals, Good times to the worst first quarter in history. But that doesn’t guarantee Spring sunshine and flowers as winter ends.

The critical faultline in the coronavirus-induced selloff has been the sudden strength in the dollar, as banks and investors globally liquidate assets and scramble for cash — above all, dollar cash. Until the Federal Reserve can satisfy onshore and offshore demand for the greenback, the economic effects of that will spread like wildfire.

Life after Coronavirus

Everybody is desperate for liquidity, from the commercial property market to blue-chip Exxon Mobil Corp (NYSE:XOM)., which had to come to the bond market recently as it couldn’t get the size of funding it wanted in commercial paper.

With this lack of access to liquidity rising all over corporate America — especially in junk-rated companies —  assets everywhere are being used as ATMs to raise urgent funds.

Some of the Fed’s liquidity measures won’t become fully operational until April 6, such as the crucial commercial paper funding facility, where the central bank will buy directly from eligible U.S. issuers. Until that backstop measure to ease borrowing in the corporate market kicks in, there will be little respite.

Future of NO CASH

We have also just passed the end of the Japanese financial year, and there has been super-strong demand from the country’s banks for dollar liquidity. Treasury bonds in return for cash.

The dollar is the world’s reserve currency and the Fed is now acting as the central bank to all. Only by pumping out liquidity globally can it possibly prevent an even more almighty rush into dollars. Until it has put a lid on the money-market stress, the rest of the financial markets remain in peril.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

FX Signals Service

Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

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