Dollar Falls as Fed cuts Rate to 0%

The dollar was on the defensive Monday morning during the Asian trade session. Overnight, the Federal Reserve, once again, shocked the global financial markets when they performed another emergency rate cut taking their Fed Funds rate to zero.

This was done to relieve a shortage of currency in the financial market and it sent shockwaves throughout the asset classes as the dollar weakened further.

The Federal Reserve will be holding its regularly scheduled monthly monetary policy meeting this week. Their decision is scheduled for Wednesday.

The dollar fell against the yen. The USD/JPY Forex market was down 1.5 percent to 106.35 yen after the Fed cut rates.

The GBP/USD currency exchange rate was up 0.9 percent to trade at 1.2405.

The euro also gained against the U.S. currency as the EUR/USD was up 0.3 percent,

Dollar weakens after the Fed Announced a Rate Cut and more Stimulus

Overnight, Sunday evening e.s.t time, the U.S. Federal Reserve cut their Fed Funds Rate (FFR) to a target range of 0 to 0.25 percent. They announced they would expand their balance sheet by nearly $700 billion over the next few weeks.

Several other global central banks have also cut their overnight swap rates to make it easier to provide dollars to relieve the stress on their financial markets.

Monetary policy makers are responding to a month of brutal selloffs in the financial markets as the threat of economic damage by the Covid-19 contagion is growing and bringing down sentiment with financial traders.

Global Central Banks Pivot Dovish with Monetary Policy

The major G-10 central banks are pivoting dovish. The Fed, the Bank of Canada, European Central Bank, the Bank of England, the Bank of Japan and Swiss National Bank have all announced that they giving three month credit in greenbacks. They will do this at a much cheaper rate than usual to support their commercial banks and underlying financial systems.

This way commercial banks pay less in interest so they boost credit lines and support to businesses to help mitigate the economic slowdown.

Two weeks ago, on 3 March, the Fed cut rates by fifty basis points. This move did not calm the market volatility and this new rate cut days before their official announcement was a surprise to financial market particpants.