After dropping 1.6% across the previous week, the euro is rebounding versus the US Dollar as the new week begins. The Fed slashed rates by 100 basis points on Sunday evening as part of sweeping measures to shore up the US economy in the face of coronavirus.
At 0.8:30 UTC, the EUR/USD is trading 1% higher at US$1.1260
Fed Slashes Rates by 1%
US Federal Reserve Chair Jerome Powell cut rates for a second time between meetings on Sunday evening. He pronounced that the coronavirus was having a profound effect on the US and around the globe.
As the number of coronavirus cases escalate the Fed decided to cut rates right back to almost zero. The central bank also restarted its bond buying programme, quantitative easing (QE) as it pledged to start buying $700 billion in US treasury bonds in an attempt to shield the US economy from what is expected to be a very hard but transitory hit. The Fed said that it was prepared to use its full range of tools to avoid a global downturn cause by the virus.
The deep cut and the start of QE by the Fed highlight the severity of the damage that coronavirus has already caused and is expected to cause to economic growth. The question is whether the move will be enough to support the economy and financial system. US stock futures are pointing to another day of steep losses. Should risk aversion remain strong, the dollar could advance as investors look to buy into it for its safe haven properties.
The move by the Fed comes after the International Monetary Fund (IMF) warned that that coronavirus was a “wicked cocktail” for economic growth and that the world had fallen into recession as a result of this virus. As the virus spreads from China across the globe, economists no longer feel the need to wait for the data to confirm a recession.
Euro Investors Look To Tuesday’s Sentiment Data
The move by the Federal Reserve was in stark contract to the European Central Bank, who last week disappointed investors by not cutting rates and instead put smaller measure in place. Investors will look towards the release of ZEW’s German economic sentiment data on Tuesday. If the coronavirus outbreak has caused a significant drop in sentiment, the euro could experience heavy losses.
