USD Index Resilient In Wake Of FED QE
Amid the COVID-19 global panic, it looks like the Greenback is the ship with the fewest rats. Big gains vs the Euro, British pound, and Swiss franc have driven the USD Index higher. This price action comes as a bit of a surprise as the ECB holds rates firm and the FED is expected to slash rates at any moment.
What a difference 6 weeks can make. At the January meeting, FED Chair Jerome Powell was happy with a “data-dependent” and “patient” approach to U.S. monetary policy. Since then, interest rates have been cut by ½ point and are expected to be taken down further at next Wednesday’s meeting.
As it stands, the Federal Funds Target Rate is currently 1.0%-1.25%. Here are the CME FEDWatch’s odds for coming rate reductions:
Meeting Date Fed Funds Rate Probability
18 March 0.25%-0.50% 7.8%
18 March 0.00%-0.25% 92.2%
29 April 0.25%-0.50% 20.8%
29 April 0.00%-0.25% 79.2%
So, the markets are widely expecting the FED to move rates to 0.00% at next week’s meeting. Despite the flat interest rate schedule and QE on the horizon, currency players are bidding March USD Index futures north.
USD Index Showing Resilience In The Face of FED QE
A few minutes ago, the FED announced that the COVID-19 QE package will be led by 3-month T-bill repurchases later today. An estimated $500 billion in emergency asset buys is expected to address evolving liquidity concerns in the debt market. The news has spiked U.S. equities and tempered gains of the USD Index.
Overview: In the last 18 hours, we’ve had travel bans, small business loan programs, and now a massive expansion of FED QE. Add it all up: the situation is serious. The U.S. economy is teetering on the edge of a 2008-esque disaster. If these measures fail to stabilize the markets, there won’t be much left for the FED to do at next Wednesday’s meeting.