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US Dollar (USD) Slumps as Federal Reserve Unexpectedly Cuts Interest Rates

Published: 3 Mar at 5 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, Italy,

Pound Sterling (GBP) Rises as Markets Expect BoE Rate Cut

The Pound (GBP) was able to make gains against a handful of currencies as the country’s trade talks with the European Union and expectations of a Bank of England (BoE) cut to offset Covid-19 damage.

The Pound also made gains after outgoing Bank of England (BoE) Governor, Mark Carney said he expected a ‘powerful and timely’ global response to the virus outbreak. Meanwhile, the British currency was barely moved on upbeat UK construction data.

Looking ahead, the Pound could make some gains following the release of the UK services PMI. If the UK’s largest sector expands at a faster rate than expected during February, GBP will edge higher.

Pound Euro (GBP/EUR) Exchange Rate Edges Higher as Eurozone Inflation Disappoints

The Pound (GBP) was able to make gains against the Euro (EUR) after this morning’s Eurozone consumer prices rose at a slower pace in February. Data showed the spread of Covid-19 depressed oil prices and sent the bloc’s energy prices -0.3% lower.

The single currency slipped from a five-week high after the European Central Bank (ECB) said it was ready to take ‘targeted’ steps to fight the effects of coronavirus.

Looking ahead, traders will likely be focused on tomorrow’s Italian GDP data. If Italy’s final GDP figures show the economy has slumped further than expected in the final three months of 2019, the Euro will slide.

Pound US Dollar (GBP/USD) Exchange Rate Rallied as Fed Cuts Rates

The Pound US Dollar (GBP/USD) exchange rate rallied this afternoon following an unscheduled and surprise interest rate cut from the Federal Reserve.

This afternoon’s move was two weeks before the bank’s next official meeting, and followed today’s conference call between G7 finance ministers and central bankers. The US central bank cut its benchmark rate from between 1.5% and 1.75% to 1% and 1.25%.

Edward Park of asset managers Brooks Macdonald, argued the Fed is attempting to reassure markets about coronavirus, and added:

‘The US joins a rolling wave of stimulus from across the globe which has previously been focused within economies strongly impacted by the outbreak.

‘Markets are trying to weigh up the unknown risk of the virus with the known stimulus efforts by governments and central banks, the decisive cut by the Federal Reserve provides an additional reason for investors to consider buying the dip.’

Pound Canadian Dollar (GBP/CAD) Exchange Rate Edges Higher despite Rising Oil Prices

The Pound (GBP) rose against the Canadian Dollar (CAD) despite oil prices rising on the expectations central banks will provide stimulus to offset the economic impact of Covid-19 and growing optimism OPEC will deepen output cuts this week.

Saxo Bank commodity strategist Ole Hansen said:

‘Oil prices recovered, in part, last week’s lost ground on the back of a general relief rally on markets, economic stimulus reassurances and expectations for petro-nations’ supply cuts. The coronavirus outbreak will dent demand for longer than initially feared, but a drastic transport disruption seems unlikely.’

Looking ahead, the ‘Loonie’ could rise following the Bank of Canada’s (BoC) interest rate decision. If the bank leaves rates unchanged, and are optimistic despite the coronavirus, CAD will jump.

Pound Australian Dollar (GBP/AUD) Exchange Rate Falls as RBA Slash Interest Rates

The Australian Dollar (AUD) rose against the Pound (GBP) today after the Reserve Bank of Australia (RBA) cut interest rates to a record low of 0.5%. The RBA was among the first in the world to ease monetary policy to fight the economic impact from the spread of coronavirus.

In a statement after the decision, RBA Governor Philip Lowe said:

‘The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors.’

Looking ahead, the ‘Aussie’ could extend its gains against the Pound following tomorrow’s GDP data. If the Australian economy expands at a faster rate than expected, AUD will rise.

Pound New Zealand Dollar (GBP/NZD) Exchange Rate Slips as Markets Expect RBNZ Cut

The Pound New Zealand Dollar (GBP/NZD) exchange rate slipped, with the ‘Kiwi’ pushed higher following the Reserve Bank of Australia’s (RBA) rate cut in response to coronavirus.

Following the announcement, ASB Bank said it expects the Reserve Bank of New Zealand (RBNZ) to cut its official cash rate by 25 basis points later this month, and by a further 25 points in May.

However, this evening could see the ‘Kiwi’ give up some of today’s gains following the release of January’s building permits data. If the number of permits slumps further than expected, NZD will edge lower.

As of Tuesday, 3rd March 2020, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.147, GBP USD exchange rate was 1.282, GBP AUD exchange rate was 1.9475, GBP NZD exchange rate was 2.0452, and GBP CAD exchange rate was 1.7152.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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