With the global focus remaining on the coronavirus outbreak, it is worth noting what the UK and European central banks have done to combat the onslaught of the COVID-19 pandemic. With the disease knocking the world since its step-up from a few cases in China to every continent in the world now experiencing some form of outbreak, pressure has mounted on central banks across the globe to prepare and introduce measures which will offset the damage caused by the worldwide interruption as workers lose jobs, businesses are forced to close and residents are shunned into lockdown. The Eurozone started off their efforts in the middle of the week by introducing a 750-billion-euro plan which was coordinated to combat the Eurozone’s struggle as it became the epicentre of the coronavirus following a slowdown of new cases in China. Meanwhile, the UK made an emergency interest rate cut on Thursday, introduced new quantitative easing plans and rolled out stimulus pledges which aimed to protect the UK economy as well as UK citizens amid the mass crisis.
Eurozone Announced 750bn Euro Support Package, but Market Suggests Eurozone Is Heading for a Recession
The euro came under fire before the start of this week due to its lack of response to the coronavirus outbreak. The single currency had seen a positive demand following the crash of the stock markets which saw investors repatriate euros from struggling capital, leading to GBP/EUR rates reaching a low of 1.053 on Thursday. But the market had noted that the Eurozone had lacked action and with little stimulus measures being announced support for EUR dropped. However, into the middle of the week, the European Central Bank (ECB) announced a shock 750-billion-euro stimulus package titled the Pandemic Emergency Purchase Programme (PEPP). The quantitative easing method will see the ECB’s governing council purchase a further €750 billion in European government and corporate bonds before the end of 2020. The program will allow the purchasing of a broader array of instruments than the existing facility including bonds of the Greek government as well as non-financial corporations. But despite the size of the monster plan, the market reacted negatively to the ECB’s response, noting that the Eurozone’s decisions have made it almost inevitable for the bloc to enter into a recession in the near-term, which took the euro lower.
Bank of England Launches All-Out Attack on Coronavirus, Boosting GBP
UK Chancellor Rishi Sunak announced on Tuesday evening that the UK had pledged further stimulus to help relieve the economy and businesses. This was followed up on Thursday as he announced that the BoE will provide help for renters and self-employed workers. Thursday also saw a shock release by the Bank of England who cut interest rates to 0.1% from 0.25% and increased its government and corporate bond holdings by £200BN in unanimous decision in a bid to negate the effects of the COVID-19 outbreak. The total value of bonds the Bank will now hold is therefore taken up to £645 billion and should provide enough demand to push the yield paid by the government and corporates lower. The moves made by the UK government have been praised by the market and consequently sent GBP higher with GBP/EUR rates moving from the 1.05 lows to 1.083 at the end of the week. The UK PM Boris Johnson noted on Thursday that the UK has more plans up its sleeve to help protect the UK economy and its citizens, which could mean a further jump higher for GBP if the government brings more help to the table in the coming week.
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