The UK remains under pressure as the UK government’s response to the coronavirus in the upcoming week is likely to guide movement in the pound.

The market noted last week, the lack of action by the UK government which undermined GBP, despite the notice of moving into the ‘delay’ phase of coronavirus containment efforts. If the government takes on a stricter approach to dealing with the virus, then GBP could receive support.

British Stock Exchange Sell-Off

For pound sterling, the market has noted that the British currency opened European stock market trading today at a lower position, in which many believe that investor flows of capital are currently working against the currency. The pound has the tendency to show weakness against the dollar and euro in the current environment of investor fear and the market notes that a large drawdown in UK investments by international investors is likely the responsible culprit for GBP’s vulnerability.

The Bank of England’s interest rate cut expectation have rose with the recent US Federal Reserve (Fed) rate cut announcement. Markets noted the central bank is likely to follow its peers and cut interest rates further, or if it opts to keep interest rates at 0.25% it will announce a boost to its quantitative easing programme.

With the UK’s last emergency rate cut following a similar pattern to that of the United States, it cannot be ruled out that the Bank of England might cut their rates once more before the March 26th monetary policy meeting, largely owing to the severity and intensity of the coronavirus.

Euro Benefits as Stocks See Sell-Off

The euro continues to fare better than its counterparts, with USD dropping following the emergency rate cut and the pound faltering on a lack of coronavirus action from the UK government, the single currency has shifted into a stronger position.

The coronavirus situation in Europe remains a significant threat, with Italy remaining on lockdown. Now Spain and Denmark, amongst others, are following suit which could lead to a severe drop in economic activity ahead for the Eurozone. The euro is likely to continue to benefit from the crash in the global stock markets; as pressure remains firmly on stocks amid the coronavirus fears, the euro is likely to see demand remain intact. The single currency has benefitted from an inflow of demand from investors liquidating their stock capital back into repatriated euros over the past few weeks, and this trend looks to continue.

US Data

US Fed Cuts Interest Rates to 0-0.25% Range in Emergency Meeting

The Federal Reservice made another emergency interest rate cut on Sunday night. The Fed cut rates to a target range of 0% to 0.25% and said that it would expand its balance sheet by at least $700 billion in coming weeks. US policymakers made the decision as a response to a brutal months-long sell-off in financial markets due to coronavirus concerns, and the economic impact of the spread across the globe as nations go into lockdown to contain the COVID-19 virus. The move came from the Fed following an effort to relieve a shortage of dollars in financial markets. In a moment of weakness for the dollar, USD fell in value against other major currencies.

The Fed, the Bank of Canada, European Central Bank, the Bank of England, the Bank of Japan and Swiss National Bank agreed to offer three-month credit in U.S. dollars on a regular basis and at a rate cheaper than usual. The move was designed to bring down the price banks and companies pay to access U.S. dollars, which has surged in recent weeks as coronavirus pandemic fears spooked investors.

Reserve Bank of Australia Interest Rates Likely to Be Cut

For the Australian Dollar, Since Friday, the Reserve Bank of Australia has thrown almost $15bn into credit markets in a bid to get them moving again. Amid stock market mayhem on Monday, the RBA made it clear it was ready to spend up big – no number has yet been set – by buying government bonds, injecting Australia’s banks with the cash craved by executives running scared because of the coronavirus pandemic. The RBA’s capacity to buy bonds is almost unlimited because it can – and does – literally print money.

On the economic release front, AUD investors will be waiting for the meeting minutes from the Reserve Bank of Australia (RBA) on Tuesday. Any dovishness from the Aussie central bank will see AUD slump. Markets are suggesting that a rate cut could look likely for the central bank after the recent 1% drop from the United States which is likely to send shockwaves throughout the global currency market.

The severity of the coronavirus looks unlikely to let-up, which means for AUD, the risk-off mood amongst investors is set to continue into the long-term. This also means that the currency is likely to remain under heavy pressure on commodity prices as well as trade with China looking gloomy considering the extremely high figures regarding infections and deaths at the epicentre of the COVID-19 outbreak.

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