RedFX: GBP weaker, USD regains some ground, chaos reigns
Yesterday, the ECB did NOT follow suit, and left its key interest rate UNchanged at -0.5%. Many commentators had been expecting a -0.1% change, to keep in line with other nations (notably, AUD< UK & USA) who have cut rates to shore up economies in the wake of Covid-19. This leaves the EUR on a firmer footing than expected, but given the huge negative (and as yet unknown) of the Covid-129 virus, the outlook remains entirely unknown.
The ECB did expand its bond buying ‘QE’ program, by €120bio through 2020. The lack of a rate cut follows Lagarde’s pervious comments that governments should take action – which is what Germany immediately confirmed – it will drop it’s balanced budget goal in the wake of the economic crisis.
As President Lagarde said: "Ambitious, coordinated fiscal stance needed."
GBP/EUR at 1.1225 has been hit hard as the UK Budget increased public borrowing significantly, and the market reacted accordingly by selling GBP.
EUR/USD is volatile between 1.1200 and 1.1300 – up from last months low of 1.0780, but very unpredictable in this environment.
Many clients have been adding their voices to the clamour that perhaps the UK is a little ‘behind’ in it’s reaction to Covid-19 – this is to be seen, but GBP weakness is clear across the board. GBP/USD continued to fall, having been up at 1.3200 on Monday, the post-budget decline in GBP has been felt, and it has fallen through 1.2600 in yesterday’s trading (lowest since Oct19).
CAD: At multi-year lows versus most of its peers as oil prices are hammered. With USD/CAD at 1.3855 – a 4yr high.
SEK: heavily sold through the week as Covid-19 is expected to hit the economy hard. EUR/SEK sits around 10.85 – a level only reached once before in the last 5yrs. The market expects the Riksbank to introduce measures to provide cheap lending to companies, and boost liquidity. Only after that is the bank expected to cut rates (which were only recently increased). It will be interesting to see if the Central Bank steps in the protect the currency at all, but in the meantime EUR/SEK tickles the toes of multi-year highs.
NOK: Sitting at 11.2950, the exact commentary for SEK applies to NOK as well.
INR: Indian Rupiah is suffering, especially against the USD, now at 74.40, and the market will watch for a break of the critical 75 level.
China: All eyes on the Central Bank reactions
Premier Li Keqiang chaired an executive meeting of China’s highest administrative body, the State Council, on Tuesday, the government announced.
The leaders stressed the need for improving financial support for businesses hit by the impact of the new coronavirus, including lowering the reserve requirement ratio (RRR) — the amount banks need to keep on hand.
“Without exception these calls by the Premier will be implemented by the (People’s Bank of China) almost immediately, so we expect the PBOC to announce a targeted RRR cut in the next few days, possibly before or over the coming weekend,” Ting Lu, chief China economist at Nomura, said in a note on Thursday.
President Macron yesterday announced the closure of all schools and educational establishments in France, which means my 5yr old daughter will be available for opinions and market commentary. In these wild times, she has as much chance as anyone.
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