By Caitlin Ostroff
The clamor for dollars eased and Treasury yields declined Friday, signs that the Federal Reserve's moves to increase dollar access are calming markets at the heart of the global financial system.
The ICE Dollar Index, which tracks the greenback against a basket of currencies, fell 0.9% Friday following three days of gaining more than 1%. Currencies that have suffered against a strong dollar gained, with the British pound climbing 3.6% after hitting its lowest level in 35 years earlier this week. The Australian dollar gained 2.3%, though it has still lost 16% of its value against the dollar this year and is near its lowest since 2002.
The Fed said Thursday it would lend billions of dollars at near-zero interest rates to central banks in Australia, South Korea and seven other countries, following an earlier round of such "swap" lines announced Sunday for central banks in Europe and Japan. On Friday, the Fed said it would increase the frequency of dollar funding operations with five of the foreign central banks. The announcements came after investors and companies scrambled for dollars earlier this week, storing up cash to weather a prolonged coronavirus economic crunch.
Haven currencies that typically rise in times of uncertainty but fell against the dollar this week also climbed Friday, with the Swiss franc rising 0.5% and the euro edging up 0.3%.
"We are definitely seeing a bit of easing" said Viraj Patel, a foreign exchange and global rates strategist at research firm Arkera. He noted that the cost to borrow dollars using contracts known as cross-currency basis swaps had come down, indicating that international investors are getting easier access to dollars.
The scramble for dollars in recent days was sparked by the broader selloff as investors moved to sell stocks, commodities and bonds, and rushed to the safety of short-term dollar-denominated debt and cash.
Other Fed moves, including efforts to backstop short-term funding markets for companies, have also eased tensions. Yields on 10-year Treasurys fell Friday to 1.009% from 1.121% Thursday, according to Tradeweb. Yields on European bonds also fell.
"I think the Fed gets it. The dollar is lots of things, but one of them is the oil that lets the financial system work," said Kit Juckes, a strategist at Société Générale. "They are throwing as much of the kitchen sink that they can, but you don't know whether it's going to work for very long."
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