The U.S. Fed’s surprise 50 basis point interest rate cut came as part of global efforts to contain economic damage from the coronavirus outbreak.
The Fed’s move came with comments highlighting both the scale of the challenge and the limits of monetary policy. This was the Fed’s first cut outside of a scheduled meeting since the 2008 financial crisis.
Some saw the Fed’s extraordinary move as a decision to move hard and early. The US central bank expected further economic damage from the spread of the coronavirus.
The Fed’s surprise move followed a shift in money market pricing late last week. Now, they imply another 50 basis points of easing by July, even though investors and the Fed itself raised doubts that easing will help deal with a public health crisis.
Investors were also watching the Bank of England for signs it would follow the Fed. Money markets have moved swiftly to fully price in a BoE rate cut of 25 basis points (bps) at its next meeting on March 26, up from a probability of 80% prior to the Fed move. Almost two cuts are priced in by the end of 2020, compared with none a few weeks ago.
The coronavirus has killed more than 3,000 people, about 3.4% of those infected – far above seasonal flu’s fatality rate of under 1%.
START TRADINGForex – Fed’s surprise rate cut to curb COVID impact
The US central bank cut interest rates by 50 basis points, in an emergency move to help cushion the economic damage caused by the coronavirus outbreak. Traders awaited further direction from other major central banks and governments.
The US dollar index recovered slightly from a two-month low hit in the last session and was flat against a basket of six major currencies.
With safe-haven currencies in demand, the dollar clawed back some ground from near five-month lows versus the yen.
The greenback fell to its lowest against the Swiss franc in almost two years.
The Sterling dipped 0.1% against the U.S. dollar and slipped 0.3% against the euro before clawing back some ground.
In commodity markets, oil prices steadied on Wednesday.
Brent crude was down by 1 cent at $51.85 a barrel at 0915 GMT. U.S. WTI was up by 8 cents at $47.26 a barrel. The contract had gained 98 cents earlier in the session.
Gold was little changed on Wednesday, a day after its biggest percentage gain – 3.7% – since June 2016 on the U.S. Fed’s surprise rate cut.
Spot gold was up 0.1% to $1,641.39 per ounce at 1102 GMT, while U.S. gold futures slipped 0.1% to $1,642.60.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money