A number of Central Banks have opted to cut interest rates with little to no warning since the spread of the coronavirus begun accelerating and the Bank of England is the latest to cut interest rates.
Following a particularly volatile start to the trading week due to Coronavirus, oil prices and Brexit news we have this morning woken to the news that the Bank of England have made an emergency move to cut interest rates by 0.5% following the US rate cut last week.
This initially led to a further loss of value for sterling against all major currencies, but in early morning trading the pound has made a fightback. An interest rate cut is generally seen as negative for the currency concerned as it makes a currency less attractive to investors, so moves like this, especially out of the blue do have the ability to lead to a weakening for that particular currency.
After a very busy week for GBP exchange rates and UK equity markets, all eyes will turn to the recently appointed Chancellor of the Exchequer this afternoon. It will be both Rishi Sunak’s, and the new Conservative Government’s first Budget and it will begin at 12.30pm later today.
Yesterday afternoon Prime Minister Boris Johnson announced that extensive preparations are underway in preparation for the coronavirus, although at this stage it isn’t time to begin shutting down mass events where large groups of people will be congregating. His words resulted in British stocks dropping to 4-year lows, and there are calls for Rishi Sunak to announce additional stimulus packages later today in order to limit the damage to the UK economy.
Aside from this afternoon’s Budget there will be a number of UK data releases out at 9.30am this morning, with Manufacturing Production and Gross Domestic Product figures perhaps carrying the greatest potential for market moment.
Italy has imposed an unprecedented decision to shutdown the entire country in an attempt to contain Europe’s worst spread of the virus. Hundreds of flights along with shops and restaurants were closed yesterday, as the Italian government has advised for people to stay at home. It had previously been just the north of the country, but late of Monday night Prime Minister Giuseppe Conte surprisingly expanded the shutdown to the entire country.
Between 13-14% of Italian GDP is derived from tourism so these measures will undoubtedly take a toll on the Italian economy. Although this will likely have a negative impact of the Italian economy, so far the euro has actually strengthened since coronavirus spread accelerated.
So far the euro has strengthened owing to fears surrounding an economic slowdown due to the spread of Corvid 19, with euro hitting its highest level against the US Dollar since January 2019. It’s being treated as a safe haven currency at the moment, and the US Dollar hasn’t been helped by the drop in the value of oil either.
Tomorrow there will be an European Central Bank Interest Rate Decision and also a Monetary Policy Statement so investors will look to this for indications of stimulus packages to counter any economic slowdowns.
The US dollar rallied yesterday, especially against the traditionally safe-haven currencies such as the Japanese yen and the Swiss franc. The reason for the boost to the US dollars value is down to hopes that global monetary policy makers will increase stimulus packages, to help offset the damage to the global economy.
US President Donald Trump has also announced that there will be measures implemented to aid the economy and the US dollar has since recovered from its lows on Monday. The greenback was sold off on Monday due to the dramatic drop in oil prices, as oil saw its largest drop in value since the 1991 Gulf War.
Later today US inflation data will be released at 12.30pm, and at the same time tomorrow Producer Price figures will also be released.
Friday afternoon could also be busy as the Consumer Sentiment Index will be released at 3pm UK time, and if you wish to plan around any of the above data releases don’t hesitate to get in touch.
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