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Dollar surges as investors rush to cash

By Lawrence Gash

Leading dollar gauge hits record high

The US dollar (USD) has gained on practically all G10 currencies in Thursday trading as investors increasingly flock to cash.

While the Norwegian krone (NOK) has suffered the worst, by late-afternoon trading the dollar gained 1.96 per cent on the euro (EUR) and 1.95 per cent on the yen (JPY).

This swing away from Japan’s traditional safe-haven currency indicates the sheer extent to which investors and financial institutions have turned to believing that "cash is king".

This week, Credit Suisse’s Zoltan Pozsar stated that urgent action was required to save the financial system and the role of the dollar as the world’s reserve currency in the wake of the Covid-19 outbreak.

In the short term however, the dollar has been bolstered despite the ongoing economic impact of the novel coronavirus. Indeed, as margin calls have loomed and traditional safe havens such as gold, treasuries and the yen prove less appealing than normal, investors have rushed to sell and instead build up cash reserves.

An indication of the scale of this rush can be found in the Bloomberg Dollar Spot Index, which tracks the performance of a basket of 10 global currencies against the dollar, hitting its highest point in its 14 year history.

Some, including China’s Global Times, have argued that the ongoing crisis could herald the end of the dollar’s reign as the global reserve currency and its replacement with the Chinese yuan.

Michael Every of Rabobank, recently responded to such claims, by asserting that China’s economy relies “on a bottom layer of USD to prop up its tottering debt pyramid,” and asking “Who says the Chinese media don’t have a sense of humour?”

Only the British pound (GBP) has seen noticeable gains on the dollar. After the Bank of England cut interest rates from 0.25 to 0.1 per cent the dollar lost 0.73 per cent on sterling.

This would not indicate the pound’s strength on the dollar however. Only the yesterday sterling fell to its lowest level on the dollar in 35 years.

FURTHER READING: Bank of England cuts rates to lowest in history and increases bond buying

FURTHER READING: Bond ETFs tumble amid Covid-19 crisis

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