- U.S. Federal Reserve Cuts Interest Rates by 0.5%
- Traders Caught Off Guard by Rate Adjustment
- Dollar Hits New Lows Across Asia
The US Dollar has been left reeling across the board by the impact of the unexpected Fed rate cut. The US Federal Reserve moved this week to cut interest rates by 50 basis points. In a move that which largely caught the market by surprise, the Greenback has struggled to get back on terms with the announcement, trading at long-time new lows against a host of other global currencies.
Reasons behind the Surprise Announcement
With a policy meeting not upcoming for another two weeks, many traders and analysts alike had predicted the Fed would wait until this time to make any adjustments. The sudden nature of the announcement has worked to spook the market on many levels. The major reasoning behind the cut is naturally an attempt to boost the forex market and economy as they struggle under the weight of uncertainty at the moment.
This uncertainty has been rumbling on for a number of weeks with the British exit from the EU compounded by the coronavirus spread that shows no signs of abating at the moment. This has had an impact on forex trading and the global economy that is hard to miss. Multiple nations stand on the brink of recession particularly across Europe and Asia, and so, governments must do something to stimulate their economies during this period. The Fed decided to take preemptive action on this front, though it seems to have undermined what little confidence remained.
More of the Same to Follow
While the Fed got out ahead of the rest of the market in setting their cuts in place, this looks certain to set the trend going forward for the moment. This is what analysts and trader alike seem to expect, with many expecting cuts. The next bank of England meeting is planned for March 26th, and this has market watchers now predicting a cut of 25 basis points.
The G7 also contributed to the poor market sentiment starting this week. They too have announced plans for similar fiscal measures where needed. They did though stop just short of calling for coordinated rate cuts across the group. This though, remains a prospect which could create even more forex market turbulence.
World Bank Planning a Boost
While the USD hit lows across Asia in particular, with even the CNY gaining ground to a high point on the currency, all was not complete doom and gloom. The World Bank have announced that they are to make an initial $12 billion in funds available to help countries who are struggling to get to grips with the current situation.
Though it remains to be seen if this announcement will have any positive rebound in the forex market, the rate cuts, while they have caught traders by surprise, will almost certainly lead to increased market investment and hopefully brighter days to follow.
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