The Dollar

In response to COVID, the amount of liquidity injected into the economy over the last 2 months is beyond unprecedented. The CARES act passed by congress totaled over $2Tn in spending for relief and as of 5/15/2020, the new proposed HEROES bill has passed the House. This second relief bill contains a new $3Tn in spending but faces a monster road block in the Senate.

The money printers that have been turned on by the FED are operating at speeds not seen before in such a modern economy. Economists continuously use the ’08 crisis as reference and the level at which credit facilities have been established and opened during COVID are unparalleled. The FED has established; Primary Market Corporate Credit Facility, Secondary Market Corporate Credit Facility, PPPLF, and Primary Dealer to name a few. They can be learned about here: https://www.federalreserve.gov/funding-credit-liquidity-and-loan-facilities.htm

Other key liquidity moves include the Swap Lines that the FED has accelerated to provide foreign central banks with the ability to inject US dollars into its institutions. Many global markets are reliant on the dollar as it is the world reserve currency and in times of stress, this temporary facility provides the liquidity needed to create stability. The FED had swap lines extended with 5 central banks and has subsequently expanded their lines during COVID. How swap lines are designed can be found here: https://www.federalreserve.gov/newsevents/pressreleases/swap-lines-faqs.htm

As money growth continues during COVID, the dollar can experience further volatility. In an economic downturn, with rates already cut to near zero, demand for the dollar can remain high due to existing deflation in US markets. Signs of deflation will drive the dollar up in relative strength, and bullish moves in the dollar may cause asset prices to further depress and head toward March 2020 lows. The scope of Macro analysis on the global level during a time such as COVID is subject to innumerable factors that will take multiple quarters to unfold. Various talks surrounding the possibility of high inflation figures to come by EOY hold true only if the US maintains near zero rates, money flows into the US, and the growth of M2 outpaces real output.