- Emergency rate cut by BoE – slashed rates by 0.5%
- USD fights back, market expect Fed rate cut
The BoE cut interest rates this morning by 0.5% and announced support for bank lending as well as a budget increase to stave off recession triggered by the coronavirus outbreak. In what amounts to a choreographed double-barrelled stimulus programme, the BoE announced its unanimous emergency rate cut as London markets were opening and before Prime Minister Boris Johnson’s government sets out its spending plans after midday.
“This is a big package. It’s a big package. It is a big deal,” Carney said, adding that the Bank was coordinating its actions with the government to have “maximum impact”. The Bank acted, Carney said, after seeing a “sharp fall” in trading conditions in the last week, particularly in the retail sector and anything driven by discretionary spending. GBPEUR moved lower to just above 1.13 but has now retraced back higher.
- A surprisingly strong currency isn’t helping a eurozone economy dealing with the effects of the global COVID-19 outbreak at home and abroad, and could give European Central Bank President Christine Lagarde and fellow monetary policy makers reason to take more aggressive action than previously expected when they meet this week, analysts said.
- After falling to a roughly 34-month low versus the dollar just below $1.08 on Feb. 20 on apparent fears that China’s coronavirus outbreak would prove especially rough for the eurozone economy, the shared currency has snapped back like an overstretched rubber band, rising more than 6.5% since then to trade above $1.14 on Monday.
- The dollar jumped on Tuesday as investors hoped global monetary policymakers would launch further stimulus plans to reduce the drag on economies from trade and travel disruptions. Investors are also expecting the U.S. Federal Reserve to cut interest rates by at least 0.5 percentage point at its policy review next week, in addition to its emergency rate reduction earlier this month.