The US dollar started Monday’s trading session sharply lower compared with Friday’s close. The reason for that was another surprise interest rate cut from the Federal Reserve. Currently, the greenback tries to recover but still trades below the previous session’s close against most of its major rivals.
The Fed in a surprise move announced a cut of the target range for the federal funds rate by a whole percentage point to 0%-0.25%. As one could expect, the decision was a reaction to the coronavirus threat to the economy. The statement said:
The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective.
By itself, the cut was not unexpected as most analysts were speculating that the US central bank will reduce interest rates again after the emergency rate cut last week. Therefore, the shock on markets was likely a result of timing. Markets were unprepared to see such an early move considering that a regular policy meeting is scheduled for this week. Most market participants were likely expecting a cut at that meeting.
EUR/USD traded at 1.1104 as of 1:16 GMT today after closing at 1.1103 on Friday and opening at 1.1187 today. GBP/USD was also trading near Friday’s close of 1.2290 after opening sharply higher at 1.2411. USD/JPY closed at 108.00 on Friday, opened at 106.91 on Monday, fell to 105.72, and rebounded to trade at about 106.84 by now.
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