WisdomTree: US Dollar is King

Source: Bloomberg, 19 March 2020

Evident from the chart above – the US dollar’s squeeze has intensified. The US Dollar is up 3.76% so far this week. The US Dollar is the global financial systems reserve currency and the Federal Reserve (Fed) its de-facto supranational central bank. The recent price rise of the US dollar reflects the scramble for US dollars by foreign institutions trying to service their dollar debt or service margin calls, which on a whole is having an effect of tightening US financial conditions. While the Fed has responded to higher demand for US dollars by raising supply via a series of open market operations it has been insufficient for foreign institutions. This week the Fed reopened swap lines with the European Central Bank and four other big banks at a lower cost. However, as pressures on the global system intensified, the Fed has established temporary (6 months) dollar liquidity swap lines with nine additional central banks. The new facilities total $60 billion for central banks in Australia, Brazil, South Korea, Mexico, Singapore, and Sweden, and $30 billion each for Denmark, Norway, and New Zealand. The expansion of the dollar swap lines allows foreign central banks to meet the needs of companies and financial institutions rushing for dollars as the global payments system undergoes severe strain due to the coronavirus.

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 ¹as of 19 March 2020