A degree of calm has returned to currency markets following yesterday’s Federal Reserve inter-meeting 50bp rate cut but the performance of US equities in coming days is likely to be true litmus test. The S&P 500 closed down 2.8% yesterday, suggesting that markets are unconvinced that looser US monetary policy on its own is the answer to the problem of how to curtail the coronavirus’ dampening impact on global economic activity.
The Dollar trade-weighted index is broadly unchanged for the second consecutive session despite the collapse in US government bond yields. Sterling has been similarly stable in today’s session despite question marks as to when (rather than if) the Bank of England will follow suit and cut its policy rate. The Bank of Canada has done just that and announced a 50bp rate cut to 1.25%, in line with expectations.
The Australian Dollar has made a small gain today, benefiting in early trading from the release of better-than-expected Australian GDP growth in Q4 of 0.5% qoq. Ultimately, however, markets will be focusing on the more relevant Q1 data. The Kiwi Dollar has arrested its 6-day slide
The Swiss Franc remains seemingly bullet proof, climbing today to a new multi-year high, despite Swiss inflation returning to deflation territory in February. Headline CPI-inflation fell to -0.1% yoy from 0.1% yoy in January which will heap further pressure on the Swiss National Bank to more forcefully restrain its currency. So far the SNB has seemed unwilling and/or unable to do so.
The Euro has shed 0.6% and erased its gains of the past two days. Markets have seemingly halted and reversed their unwinding of Euro shorts, with the rapid spread of the coronavirus in Italy – the Eurozone’s third largest economy – making some unwelcome headlines.
