FOMC Surprisingly Slash Rates And Introduce A Big QE Program

Overnight the Federal Reserve took huge action, with a massive rollout of dovish measures, in an attempt to ease the deepening investor anxieties. There are big efforts to try and mitigate the economic damage from a spreading coronavirus pandemic.

The Fed slashed the U.S. interest rates to a target range of 0% to 0.25% on Sunday and said it would expand its balance sheet by at least $700 billion in the coming weeks. These are moves to bring some market stability, following big sell-offs last week for the stock market.

What happened to the USD?

The U.S. Dollar was initially hit hard with some selling pressure, given these dovish-USD negative moves from the central bank. However, much of the move south has been recovered, given the current safe-haven status for the greenback.

Markets are aware that the USD is the most liquid currency in the world and the most used, as it is the reserve currency. All business is pretty much dominated in dollars. Additionally, every other major central bank is also acting, so all are very much in the same boat.

Other central bank action over the weekend

The Bank of Japan said at an emergency meeting it would buy more corporate bonds, commercial debt and set up a new corporate lending scheme, joining the stepped-up global response. New Zealand’s central bank also slashed rates in an emergency move on Sunday.

The Reserve Bank of New Zealand cut rates by 75 basis points to a record 0.25%, while the Reserve Bank of Australia added A$5.9 billion ($3.63 billion) to the banking system through market repo operations.

The RBA said it is to conduct 1-month and 3-month operations until further notice (i.e. it will be doing repo ops like the Fed has been doing).

The Bank of Canada cuts rates by 50bps to 0.75% from 1.25% and said that it stands ready to adjust monetary policy further if required to support economic growth and keep inflation to target. The BoC said it took these proactive measures in light of the Covid-19 pandemic and a recent sharp drop in oil prices.


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