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US dollar stumbles as Fed shocks markets with an emergency rate cut

currency-newsUS dollar stumbles as Fed shocks markets with an emergency rate cut
The US dollar found itself centre stage yesterday following the Federal Reserve’s shock move to cut interest rates immediately.

The pound meanwhile, is on the defensive this morning with GBP/EUR muted at €1.1453 and GBP/USD subdued at $1.2792. GBP/CAD has retreated to C$1.7087, while GBP/AUD and GBP/NZD have slipped to AU$1.9377 and NZ$2.0366 respectively.

Looking ahead, markets will now be keeping a close eye on other central banks to see if they are likely to follow the Fed’s lead.

What’s been happening?                      

The US dollar weakened on Tuesday in response to the Federal Reserve’s surprise announcement that it would be implementing an emergency rate cut to help protect America’s economy against the coronavirus.

In an unscheduled move, coming two weeks before its next official policy meeting, the Fed cut interest rates by 50 basis points to 1%.

The statement from the Fed read:

‘The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks the Federal Open Market Committee decided today to lower the target range for the federal funds rate.’

At the same time, the pound ticked higher yesterday, buoyed by a surprisingly strong construction PMI and some words of confidence from Bank of England (BoE) Governor Mark Carney.

Meanwhile, the euro struggled to find momentum on Tuesday as it was undermined by a fall in Eurozone inflation and concerns Germany’s fiscal response to the coronavirus may be limited in scope.

What’s coming up?

Coming up the US dollar will remain in focus today as markets look to assess the impact of yesterday’s Fed rate cut.

Also set to influence USD exchange rates will be the publication of the latest ISM non-manufacturing PMI, where a robust performance by the US service sector last month could offer some support to the US dollar.

In Europe the focus will be on the Eurozone’s latest retail sales figures, where a rebound in sales growth in January may prove supportive of the euro.

Finally, the focus for GBP investors will be on the UK’s latest services PMI, with the pound likely to strengthen if it confirms growth in the vital service sector remained robust last month.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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