Monday, March 16, 2020

"What would be useful for the cause would be a plunge in the dollar,"

That's from Steve Barrow, head of G10 Strategy at SBG via Bryce Elder at Markets Now:
[T]he academic thinking from the Fed for some time has been that, when rates start off at a low level, it is best to be quick and bold with rate cuts rather than try to ‘save them up’. The Fed’s bold action has also been necessary given how dollar liquidity conditions have tightened up, and hence the action on swap lines with other major central banks. The key now is that these measures start to quickly relieve liquidity pressure because, if they don’t, the market will fear that all the banks – including the Fed – are out of bullets and hence powerless if the global economy swallow-dives and liquidity plunges at the same time. What would be useful for the cause would be a plunge in the dollar, for dollar weakness can rapidly ease liquidity conditions abroad. The prior 50-bps cut in the fed funds target produced some modest dollar weakness. Last night’s 100-bps cut could produce more – although we are not hopeful at this stage. On the central bank swap lines, officials face the familiar problem that you can take a horse to water, but you can’t make it drink. What we mean by this is that the Fed and other central banks can make much more dollar liquidity available to banks – and at lower rates – but banks might still not take up this liquidity if the risk is that they are named and shamed as requiring central bank support. European banks, for instance, are still very weak and might not want to risk being seen going to the ECB, or other central banks for large amounts of dollar liquidity.

With the dollar unlikely to collapse and the take-up of central bank swaps less than policymakers might like, it seems hard to believe that the aggressive action taken last night is going to turn sentiment on its head in the financial markets. There could undoubtedly be some short-term relief in risk assets, especially if dollar funding pressures do seem to ease....

The US Dollar Index (DXY-cash) is down -0.55% at 98.20.
If you are looking for a sign that might be a place to watch for one.
Earlier in signs:
Lord, Give Me a Sign....