Fed announces emergency rate cut

Good Afternoon, The US Federal Reserve has made its first emergency rate cut since the height of the 2008 financial crisis on concerns over the impact of coronavirus. EVOLVING RISKS TO US ECONOMY In a statement released by the Federal Open Market Committee, it said that it viewed the fundamentals of the US economy as remaining strong, but that the coronavirus poses “evolving risks to economic activity”, adding that: “in light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.” The move represents a fast move in public stance from the US central bank – on Thursday Chicago Federal Reserve Bank President Charles Evans said that it would be: “premature until we have more data and have an idea what the forecast is to think about monetary policy action.” G7 STATEMENT The move from the Fed comes after a statement from the G7 this morning that was heavily couched in central bank speak. Though not specifying any particular course of action, the statement said that: “Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.” RBA OVERNIGHT CUT Overnight, the Reserve Bank of Australia cut rates in response to coronavirus concerns, with the Australian dollar being one of the most exposed major currencies to Chinese disruption. In the statement accompanying the decision, Philip Lowe the RBA Governor said that: “The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected. Prior to the outbreak, there were signs that the slowdown in the global economy that started in 2018 was coming to an end. It is too early to tell how persistent the effects of the coronavirus will be and at what point the global economy will return to an improving path.” WHO NEXT? The move from the Fed of course fuels speculation that the Bank of England and the European Central Bank may follow course, however in the short term the move from the Fed has helped to drive sterling to USD1.283 while the euro has seen additional upside momentum after being given plenty of support from a short squeeze on the unwinding of EUR-funded carry positions – rallying to USD1.121 on the announcement. To discuss any of the items we have covered in today's market update, contact us via info@labardemanagement.com or call us on (+44) 0203 3488 1169