The minutes from the Bank of England’s “emergency rate cut” meeting revealed a number of available options were discussed, including another interest rate cut if needed to provide further stimulus. The Pound jumped up on the news but was soon overwhelmed by selling as global fear dominated. Fears that the UK economy would be damaged by a sharp downturn in global trade continued to grow. Selling pressure intensified towards the end of the day as the Dollar strengthened sharply. Since Monday, Sterling had dropped by circa 5%, the worst performance since 2009.
Donald Trump extended the US flight ban to cover the UK and Ireland, which can only damage confidence further. The Pound recovered some ground against the Dollar after the Fed cut interest rates again, but the move above 1.2400 triggered further selling and the Euro hovered below 1.1111. High Sterling volatility is inevitable.
At the time of writing the Pound sits at 1.0970 against the Euro and 1.2310 against the Dollar.
The US University of Michigan consumer confidence index declined to 95.9 for March from 101.0 previously. There was a negative impact from coronavirus concerns and weakness in equities, although the overall data impact was very limited. The dollar also secured further strong gains especially with robust demand for the US currency into the weekend as risk dominated.
There was also further evidence of a dollar shortage which boosted the US currency to 2- week highs and the Euro declined sharply to near 1.1050 before a slight recovery. CFTC data recorded a huge dip in Euro short positions, reinforcing evidence that the Euro had gained from short-covering with overall dollar longs at a 2-year low.
Ahead of Monday’s open, the Federal Reserve (Fed) took further drastic action with the Fed Funds rate cut by a full percentage point to match record lows at 0-0.25% while it also introduced a $700bn programme of bond purchases. The dollar opened sharply lower, but recovered ground as confidence in the global outlook remained very fragile with the Euro around 1.1140.
The Euro is close to the 1.12 level, defending minor gains amid a stalled rebound in the Dollar as the US Federal Reserve unexpectedly cut rates to 0.0%. Despite the Fed’s rate cut and QE announcement, the sentiment remains sour amid growing concerns over a global recession due to the coronavirus outbreak.
Markets are now awaiting the outlook from the G7 leaders meeting later today in response to the virus outbreak for fresh near-term trading opportunities.
Data to watch
All Day - All Currencies - G7 Meetings
12:30 - USD - Empire State Manufacturing Index
Posted in Daily Market News on Mar 16 2020