UK Government Announces Coronavirus Rescue Package
The GBP to USD rate rebounded from Thursday’s 35-year-low, amid concerns surrounding the economic damage caused by the coronavirus, to end last week above the 1.16 benchmark. Following a sustained run of significant losses, the tide turned for the pound after the Bank of England (BoE) announced its second emergency interest rate cut in as many weeks and boosted its quantitative easing programme by £200bn. The central bank slashed the cost of borrowing to a record low of 0.1% from 0.25%; a move which helped the pound to record big-figure percentage gains against the dollar.
On Friday the chancellor, Rishi Sunak announced further emergency measures designed to prevent the most damaging recession in a century and a wave of unemployment. Mr Sunak unveiled an unprecedented economic stimulus plan, including paying a portion of employees’ wages for the first time in the nation’s history. Markets welcomed the BoE’s strategy for managing the economic impact of the pandemic, which is hoped to stand the UK economy in good stead once the situation has been brought under control. Unfortunately, no one quite knows when that will be, meaning the government might have to dig deep into its piggy bank for a prolonged period to keep the economy afloat.
California Goes on Lockdown to Control the Spread of Coronavirus
There is a growing demand for the dollar – the world’s reserve currency – as fears of a global recession gather pace, despite concerted efforts by world governments and central banks to alleviate the economic damage caused by the coronavirus crisis. Concerns about the strength of the dollar were reflected in the US Federal Reserve’s decision to extend currency swap lines to another nine countries — alongside the five relationships it already has — to try and keep the supply flowing to banks around the globe. The move will enable these nations to sell dollars on the open market and lift their domestic currencies without depleting precious foreign exchange reserves.
On Friday, the dollar – which had seen its safe-haven demand wane slightly towards the end of last week – took a turn for the worse after the state of California announced it would be going into lockdown to prevent the spread of the coronavirus.
The Chicago Fed national activity index is the only data release of note from either side of the Atlantic today. Tomorrow’s Markit manufacturing and services PMIs for March from both the UK and US will provide an indication of the damage the coronavirus outbreak is doing to both economies.
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