News & Analysis

Price action across FX, equities, and fixed income are suggesting a mood of relief today, with the US dollar lower across the board and equities higher after the US Senate passed a $2 trillion fiscal stimulus bill. In addition to improved risk appetite, the dollar may also be lower because of easing funding pressures, as evidenced by narrower cross-currency basis swap spreads.

The Federal Reserve announced coordinated swap lines with a number of global central banks last week, in response to a global scramble for dollar liquidity that likely contributed to rapid USD appreciation. Recent results from central bank repo operations, combined with weakness in spot USD exchange rates and lower cross currency basis swap spreads, suggest that some of this funding stress has eased this week.

How long this respite can last remains anyone’s guess. But the fact that the worst initial jobless claims print in US history has failed to create much of a market impact today suggests that a substantial shock to growth has likely already been priced in by markets, and that for now the policy response from central banks and governments has been sufficient to end last week’s panic.


ECB, BoE, BoJ and SNB USD repo operations have been getting smaller


Cross currency basis swap spreads have been shrinking



The Bank of England kept rates unchanged and gave us further insight into the drivers behind its dramatic and aggressive policy interventions over the past two weeks. In the past two weeks, the Bank of England has cut interest rates to their historic lower bound, announced a £200bn expansion in its asset purchase program, and enacted a host of measures aimed at boosting liquidity and easing credit conditions for businesses. Unsurprisingly, no further action was taken today, but we did get some further insight into the BoE’s thinking:

  • The BoE thinks it is “probable” that global GDP will fall “sharply” in the first half of this year, with “rapidly” rising unemployment across a range of economies.
  • March’s flash PMIs got a mention as the first evidence of the size of the shock to the UK economy – they have fallen to all time lows.
  • The BoE has identified two priorities: mitigating the shock to businesses and employment, and preventing a financial crisis. Different tools are being deployed to each end; rate cuts and QE for the former, credit easing and liquidity measures in conjunction with HM treasury for the latter.
  • As suspected, last week’s spike in gilt yields was clearly what triggered the emergency meeting and restart of QE. Disruptions in dollar funding markets were also mentioned. The BoE has offered USD repos using dollar liquidity obtained by swaps from the Fed to address this issue.
  • Once again, coordination with Government policy was stressed. This is particularly true in lending to small businesses with the Covid Corporate Financing Facility, where the BoE would purchase commercial paper. The BoE will determine the size of the CCFF that will be financed by central bank reserves.



USD pared gains for a second day in a row, with yesterday´s move broadly triggered by a risk relief on the back of the Senate´s approval of a fiscal rescue package. After two failed attempts of negotiations, a $2 trillion extra budget was agreed in a unanimous bipartisan vote, including business bailouts, income support and hospital funding. Details of the bill follow as below:

Corporate assistance:

  • $500 billion in loans and other assistance to big companies as well as besieged states and cities. Any company receiving a government loan would be subject to a ban on stock buybacks through the term of the loan plus one additional year, would have to limit
  • executive bonuses and take steps to protect workers. $350 billion in aid for small businesses, but they must agree to retain workers. $17 billion in loans for companies deemed critical to national security, which is intended to assist Boeing Co. though the
  • legislation doesn’t mention the company by name.
  • $25 billion for airlines in grants, with conditions, and $25 billion in loans
  • to passenger carriers, $3 billion to airline contractors and $4 billion in grants for cargo haulers.

Direct payments to consumers:

  • Individuals are eligible for checks up to $1,200 and married couples filing jointly are eligible for checks up to $2,400, with an extra $500 for each child.

Additional measures:

  • $4 trillion in direct aid to local governments and industries, administered by the Fed.
  • $150 billion for hospital equipment and supplies. $16 billion for medical supplies and $3.5 billion to expand production and development of coronavirus-related vaccines and tests. $400 million in election assistance for 2020 voting. Student loan payments can be deferred for six months.


One of the central provisions of the package is centered on unemployment benefits. While during normal cycles, the US unemployment insurance system is designed to encourage people to look for work during recessions, this time around the bill is aimed at supporting furloughed workers, as they are actually asked to stay at home. The new measure guarantees the federal government would enhance the weekly insurance by $600 for four weeks, on top of benefits provided by the states. For some states, that would more than double the size of the unemployment insurance they would have received without the bill.

The measure comes at a critical time, when jobless claims spike to record highs in the US.

In the second week of March, new claims rose by 33% to 281k, the highest jump since the aftermath of Hurricane Sandy in November 2012. New claims in the week after rose to 3.2 million, 4.8 times the record set in September 1982. Estimates place the federal budget deficit around 14% of nominal GDP this year.


 US weekly jobless claims more than quadruple the worst previous week


Ranko Berich, Head of Market Analysis
Olivia Alvarez Mendez, FX Market Analyst



This information has been prepared by Monex Canada Inc., an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Canada Inc., or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.