TheÂ US dollar is slumping onÂ Tuesday asÂ theÂ Federal Reserve announced anÂ emergency cut toÂ interest rates. With financial markets tanking andÂ plenty ofÂ economic uncertainty surrounding theÂ coronavirus, theÂ central bank cut its benchmark rate byÂ 50 basis points. Stocks fell after anÂ initial bump, but theÂ greenback was largely unaffected byÂ theÂ announcement.
With theÂ adjustment, theÂ fed funds rate will be inÂ theÂ target range ofÂ 1% andÂ 1.25%. This comes after theÂ Fed cut rates three times last year byÂ 75 basis points.
TheÂ coronavirus is presenting âevolving risksâ toÂ theÂ US economy, theÂ Fed said inÂ aÂ statement. InÂ its first such move since theÂ 2008 financial crisis, theÂ Fed took action after many officials warned that Covid-19 was affecting theÂ material impact onÂ theÂ economic outlook.
InÂ light ofÂ these risks andÂ inÂ support ofÂ achieving its maximum employment andÂ price stability goals, theÂ Federal Open Market Committee decided today toÂ lower theÂ target range forÂ theÂ federal funds rate.
TheÂ magnitude andÂ persistence ofÂ theÂ overall effect onÂ theÂ US economy remain highly uncertain andÂ theÂ situation remains aÂ fluid one. Against this background, theÂ committee judged that theÂ risks toÂ theÂ US outlook have changed materially. InÂ response, we have eased theÂ stance ofÂ monetary policy toÂ provide some more support toÂ theÂ economy.
President Donald Trump lauded theÂ news, but he tweeted that theÂ Fed did not go far enough.
TheÂ Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing onÂ aÂ level field. Not fair toÂ USA. It is finally time forÂ theÂ Federal Reserve toÂ LEAD. More easing andÂ cutting!
Treasury Secretary Steven Mnuchin welcomed theÂ move after he andÂ other G7 officials confirmed they would act toÂ prevent further economic harm. However, investors were not satisfied asÂ they failed toÂ reveal what tools they would use toÂ limit theÂ fallout ofÂ theÂ outbreak. He later clarified that any stimulus package inÂ response toÂ theÂ outbreak would involve infrastructure spending.
Some analysts say that traders will begin toÂ price inÂ aÂ zero-interest-rate-policy (ZIRP) byÂ theÂ end ofÂ theÂ year, especially if theÂ effects ofÂ theÂ virus are not contained byÂ theÂ summer. Additional easing could happen asÂ early asÂ this monthâs FOMC meeting.
OnÂ theÂ data front, theÂ Institute forÂ Supply Management (ISM)‘s manufacturing purchasing managers’ index (PMI) came inÂ atÂ 50.1 forÂ February, down from 50.9 inÂ January. New orders fell toÂ 49.8, prices slipped toÂ 45.9, andÂ employment edged up toÂ 46.9Â â anything below 50 indicates aÂ contraction.
TheÂ US Dollar Index, which measures theÂ greenback against aÂ basket ofÂ currencies, slumped 0.2% toÂ 97.16, from anÂ opening ofÂ 97.56.
TheÂ USD/CAD currency pair rose 0.25% toÂ 1.3358, from anÂ opening ofÂ 1.3327, atÂ 15:55 GMT onÂ Tuesday. TheÂ EUR/USD advanced 0.4% toÂ 1.1179, from anÂ opening ofÂ 1.1135.
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