Thursday turned out to be a good market for Euro and Yen swap spreads as they achieved stability, perhaps on the heels of the U.S dollar’s declining demand. The EUR/JPY exchange rate also has a bit of a bounce-back on Thursday after a bearish performance this week.
The Yen and the Euro have the most liquid swap spreads in the market but their spreads drastically widened in March as banks rushed to hold more USD reserves. The week is however coming to an end with declining demand for dollar funding thanks to numerous measures that the Federal Reserve recently implemented. Consequently, those measures have also contributed to the stabilizing Euro and Yen swaps.
Forex swaps are used to convert the funding of one currency into another. The EUR/USD 3-month swap spread widened by roughly 59 basis points on Thursday in the Euro’s favor, and this was the highest spread that has happened since 2004. Meanwhile, the 3-month swap for the USD/JPY pair widened by 19-basis points in favor of the Yen.
The EUR/JPY exchange rate performance
The declining demand for the USD funding by banks may also influence the price performance of the EUR/USD currency pair. The pair kicked off Monday’s trading session at a high of 119.859 but the price has been falling and that bearish trend seems to have reached its lowest on Thursday at 116.353.
The price has since then experienced an uptick but the bulls have not been particularly strong enough to and have only recovered some of the lost ground. Friday morning saw the price drop from 117.308 to 116.733 but then it attempted to pull back. The currency pair traded at 117.043 at the time of this press. The currency pair’s declining price was also influenced by the coronavirus pandemic and its economic impact. Investors have been rushing to the Yen as a haven currency and thus the Euro’s declining value. The Euro is now gaining some traction courtesy of government policy changes.