The euro rose more than 1% to $1.0832 on Friday, after the volatile trading week. However, gauges of expected market swings for a month in the euro lowered a little. Currency swap spreads also eased where most of the funding pressure in dollar markets was evident.
Stuart Oakley, a Singapore-based executive with Nomura, noted that people are selling everything, and the common thread is they want cash. He also added that people don’t know where their next revenue is coming from, and they’ve got payments to meet. That’s why they prefer to get cash. Oakley thinks that it’s not going to change soon as the pandemic continues.
Sterling gained 3.3% to $1.1878, rising from a 35-year low. However, cross-currency basis swaps, showing the cost of borrowing dollars abroad, indicate that strains remain so far.
The premium over interbank rates, on the other hand, climbed to 68 basis points, close to the 2016 highs hit last week. Euro cross-currency basis swap spreads are also wide.
Meanwhile, the Australian dollar increased by 3.4% on Friday after tumbling to multi-year lows last week. Analysts think that the recovery may be short. Even though the market was remarkably calm on Friday after a turbulent week.
What caused the U.S. dollar’s rise?
The dollar soared by more than 5% on Thursday, showing its biggest weekly gain since October 2008. The greenback gained about 3.5% against a basket of currencies during the last week due to the investors liquidating virtually everything – stocks, gold, bonds, commodities.
However, as a global scramble for funding sent other major currencies reeling on Friday, the dollar eased a little. Other currencies collapsed during the last week after billions of dollars of fund injections and coordinated rate cuts by central banks failed to calm panicky traders.
Kit Juckes, a strategist at Societe Generale in London, noted that while Forex volatility is lower and currency basis swaps are less scary, the situation remains stressed so far.