Currency Market Analysis

Mar 11, 2020 | Currency Market Analysis

Global Themes

Britain slashes rates, sterling surprises

The greenback weakened anew as it tracked U.S. stock futures and Treasury yields lower. Losses for the buck were as modest as they were broad based. The U.S. unit declined against the euro, yen and Canadian dollar. The pound initially fell after an emergency interest rate cut by the Bank of England. In his final week at the helm of the U.K. central bank, Gov. Mark Carney slashed Britain’s key rate by a robust 50 basis points to 0.25%, a record low. Sterling fell in knee-jerk reaction but quickly stabilized as the move raised the stakes for the ECB Thursday to redouble stimulus with the bloc teetering on the brink of recession. The buck remains subdued as many expect the Fed to let the real monetary fireworks fly next week.

CAD

The loonie steadied after sinking to more than four-year lows against its U.S. counterpart this week. Upside traction appears limited at best for the northern unit, particularly with oil starting the day in the red, down 3% to $33. The Bank of Canada appears to be in the early innings of slashing borrowing rates as the coronavirus spells heightened uncertainty for an economy that had already decelerated sharply before the global coronavirus crisis. 

EUR

The euro benefited from another bout of dollar weakness, though gains were mostly modest ahead of a much-anticipated policy decision from the European Central Bank. The ECB Thursday is expected to fire one of its few remaining policy bullets with the bloc’s economy on the brink of recession. Key for the euro will be whether central bank president Christine Lagarde’s actions and words win over skeptical observers. An ECB that should underwhelm at a time when stocks continue to sink would be a recipe for a stronger euro. 

USD

Not much to excite the U.S. dollar from the latest inflation figures which remained mostly tame and conducive of lower interest rate policy by the Fed. Core consumer prices rose by 0.2% for a second straight month in February. The dollar continues to sputter on high hopes for another aggressive rate cut by the Fed next week.   

GBP

Sterling initially shed a cent and hit one-week lows after the Bank of England slashed borrowing rates to 0.25%, a record low, from 0.75%, an emergency move in the face of the coronavirus. The day was already an eventful one with U.K. numbers on growth and factory activity that surprised to the downside. Britain today is also set to unveil a budget whose fiscal spending plans may prove more substantial in the wake of the BOE’s surprise lending rate cut.  


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