Dollar Loses Ground After Fed Announces Massive Relief Package

Dollar Loses Ground After Fed Announces Massive Relief Package

The U.S. dollar traded weak against most of its peers on Monday, after the Federal Reserve announced extensive new measures, including an unlimited expansion of its asset purchases to support the financial market.

The central bank said it will purchase Treasuries and mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

The Fed had previously announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities.

The central bank also announced the establishment of a new program that will provide up to $300 billion in new financing in an effort to support the flow of credit to employers, consumers, and businesses.

The Treasury Department will provide $30 billion in equity to these facilities using the Exchange Stabilization Fund.

The Fed said it will also establish two facilities to support credit to large employers, with the central bank to purchase corporate bonds issued by investment grade U.S. companies.

The central bank has also reinstated the fiscal crisis-era Term Asset-Backed Securities Loan Facility to support the flow of credit to consumers and businesses.

Additionally, the Fed said it expects to announce the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the Small Business Administration.

The Fed had slashed interest rates by 100 basis points last week, lowering the target range for the federal funds to zero to 0.25%.

The dollar index, which dropped to a low of 101.65 a little before noon, recovered subsequently, and was last seen at 102.55, down 0.26% from previous close.

Against the Euro, the dollar weakened to $1.0731, down 0.32% from Friday’s $1.0697.

Against pound sterling, the dollar rallied to $1.1506 after early weakness.

The Japanese yen was down at 111.24 a dollar, losing ground from Friday’s close of 110.82 yen a dollar.

The loonie was down by about 1% at $0.1.4508. Swiss franc gained about 0.3% against the dollar at $0.9839.

The Aussie, rebounding from recent losses, was up at 0.5817 against the dollar.

The Australian government announced a second set of economic responses to support households and businesses and address the economic consequences of the coronavirus, or, covid-19.

The latest announcement together with the initial package will take overall stimulus to A$189 billion or 9.7% of Australia’s GDP.

“We will be doing everything we can to protect those most vulnerable to the impacts of this crisis and to preserve the businesses that employ them,” Prime Minister Scott Morrison, said. “There will be more support to come.”

The government enhanced the cash flow support for eligible small and medium-sized businesses to A$100,000. The government will guarantee 50 percent of SME loans.

The instant asset write-off threshold was raised to A$150,000 from A$30,000.