- GBP crashes as a flight to safety sought out the bad apples and plies into the US dollar.
- COVID-19 fears is tearing through markets in a mass liquidation.
- The dollar squeeze is on and volatility is here to stay.
In a COVID-19 market liquidation, the US dollar has gathered the market’s idle capital as markets continue to liquidate holdings. EUR/GBP has spiked to the Global Financial Crisis highs as cable gets whacked to a low of 1.1449, the lowest level since 1985 ( the Jan 1985 low was in the 1.12 handle).
At the time of writing, EUR/GBP is trading at 0.9390 between a low of 0.9067 and 0.9436. Cable sits at 1.1510, having travelled from a high of 1.2129 to a low of 1.1449. The DXY has hit a high of 101.71 from 99.15 the low. It seems that an exodus from US Treasuries and circuit breakers in the US indexes going off has sparked a rally in the US dollar with the central bank’s recent efforts to draw in liquidity in the dollar market falling on deaf ears. The dollar funding squeeze is well underway and one has to wonder how solid the too big to fail banks are going to be in dealing with bad loans. What we can expect is higher volatility in FX as liquidity dries up.
COVID-19 update for UK
- Confirmed cases: 1,950
- New cases: 407
- Deaths: 60
There has been a fair bit fo criticism of the UK Prime Minister Boris Johnson’s confused response to COVID-19 and lack of clarity nor direction for the UK public. Panic has set in and the pound has crashed as investors pull the plug. However, there has been a policy shift but the UK government waited longer than every other Mainland European nation. A message that came from researchers for the government was warning them to change course or a quarter of a million people will die in a “catastrophic epidemic” of coronavirus.
The BBC notes that “the crucial piece of evidence came from the scientists at Imperial College London who first realised the scale of the problem in China and whose advice is heavily influential in government. They said coronavirus was the most serious public health threat seen in a respiratory virus since the 1918 flu pandemic – known as the Spanish flu.”