The global demand for USDs that was a Key safe-haven buy in the early days of The China Virus have passed, the latest milestone in the fast turnaround in financial conditions engineered by the Fed and other Top central banks.
Data from the Fed last Thursday showed central banks around the world tapped it for the fewest USDs in nearly 3 months, and it was the Key factor driving a reduction in the Fed’s $7-T balance sheet, the 1st since February and the largest since the days of the Y 2008 financial crisis.
The balance of the Fed’s FX (foreign exchange) swaps with other central banks dropped by $92-B as of last Wednesday to $352.5-B from $444.5-B a week earlier. The total amount outstanding in the swap lines, designed to ease a surge in demand for USDs in the participating banks’ jurisdictions during the early weeks of the crisis, was the lowest since early April.
Together with other indications of fading demand for the Fed’s emergency liquidity facilities, the reduction in currency swap line usage is for many analysts a sign that global financial markets are returning to near-normal after being upended by The China Virus outbreak in February and March.
We expect a fast decline over the coming months as the majority of the swaps will roll off.
Last week the .DXY gained 0.4% to 97.67
Have a healthy week, Keep the Faith!