Alan Ruskin, chief international strategist at Deutsche Bank AG, has warned that the Federal Reserve’s decision to inject US dollar liquidity into the monetary system is a clear negative for the currency. In a coordinated effort with five other central banks, the Fed announced the move on Sunday to ease growing strains in the global financial system.
According to Ruskin, the rush to add liquidity is “the most overt sign” of financial stress and could signal that the underlying financial problem is not being properly addressed. He believes that the Fed’s action of adding to its balance sheet without resolving the underlying issue is among the worst outcomes for the USD.
The coordinated effort to inject liquidity into the system comes as concerns grow over the impact of the coronavirus outbreak on the global economy. Central banks have been taking steps to address the economic fallout, including lowering interest rates and providing liquidity.
The Fed’s liquidity injection involves offering up to $115 billion in short-term loans to banks in exchange for US government debt. The move is aimed at easing the strain on funding markets, where banks have been struggling to obtain short-term financing.
However, Ruskin warns that the Fed’s action may not be enough to ease the strain on the financial system. He believes that a more comprehensive solution is needed to address the underlying issues.
The impact of the Fed’s action on the USD remains to be seen. The currency has already been under pressure due to concerns over the coronavirus outbreak and the potential impact on the US economy.
In conclusion, while the Fed’s liquidity injection may provide some short-term relief to the financial system, it may not be enough to address the underlying issues causing the strain. And as Ruskin warns, the impact on the USD may be negative in the long run.