The Pound has surged versus the US Dollar as the markets open at the start of the new week after the Fed slashed rates by 100 basis points as part of sweeping coronavirus crisis measures. At 07:30 UTC, the Pound versus US Dollar exchange rate is trading 0.6% higher at US$1.2370, easing back from the high of US$1.2431 reached overnight
The move higher comes after GBP/USD dropped a fresh 5 months lows of US$1.2067 on Friday, after falling 5.9% across the week.
Pound Looks For More Draconian Measures From UK Government
The pound fell across the previous week despite a strong coordinate message from the Bank of England and the Chancellor. The BoE slashed interest rates by 50 basis points, while the Government unveiled spending to the tune of £30 billion to shore up the UK economy through coronavirus. However, the gains from the coordinated approach were short lived.
Prime Minister Boris Johnson also upgraded the UK response to coronavirus to stage two last week – the delay phase. However, his relaxed measures left pound investors disappointed and pricing in a greater economic hit.
Over the weekend pressure mounted on Boris Johnson to bring tougher measures into place such as isolating the elderly and quarantining families. Mass gatherings have now also been banned in a U-Turn by the government. Stricter measure would be more in line with the rest of Europe and particularly China and South Korea where the number of cases are now falling.
Fed Cuts By 1% & Restarts QE
The Dollar dived as the markets opened after the US Federal Reserve made the second between meetings rate cut. The US central bank cut rates by 100 basis points. The Fed has cut rates by 1.5% over the past week, leaving them close to zero in a sweeping bid to shore up the US economy and financial system. The Fed also restarted its bond buying programme (QE – quantitative easing), pledging to buy $700 billion in treasury bonds. These loosening measures make the dollar less attractive.
The move comes after the International Monetary Fund (IMF) warned that coronavirus and the dramatic action to slow its spread was a wicked cocktail for growth. As the virus spreads from China to the rest of the world analysts no longer feel thy need to wait for data to confirm the world is in recession. IMF Chief economist Gits Gopinatrh warned that an aggressive policy response was necessary to prevent this transitory shock becoming a major financial crisis.
