The coronavirus is a global threat which has dominated headlines for months. The outbreak started at the end of 2019 and filtered into the new year with devastating effect. China was the originating source of the outbreak, the Wuhan province to be precise. Since the outbreak began in China the numbers of infected people rose day-by-day, ultimately leading to the spread outside of the country, spreading across to Iran, South Korea and even Europe. As it stands, the virus has spread to 84 different countries, with China, Italy and South Korea being among the most affected nations. In response to the global threat, central banks around the world are collaborating to mount a response to decrease the damage caused to the global economy. The recent crash in global stocks served as a severe warning to the world of the destruction that the virus could cause if left to spread uncontrollably.
Global economy rocked by the coronavirus fears, central banks cut interest rates
The threat from the coronavirus infection has spurred interest rate cuts from central banks across the world. The United States saw a severe 50 basis point cut on Tuesday this week, a move which shocked the market as the decision came two weeks earlier than the official US Fed policy meeting. In response to the Feds cut, central banks around the world have followed suit with many more expected to do the same in the weeks to come. Canada’s central bank followed suit of the United States, opting to drop their rate from 1.75% to 1.25%. Australia also saw its central bank cut their rate from 0.75% to 0.50%, after the devastating blow dealt to its economy by the reduced market risk appetite of the COVID-19 fears.
Spotlight set on Bank of England and European Central Bank for their policy decisions
The UK and Eurozone central banks are yet to make their decisions on their interest rate decisions. But with the current trend displayed cuts across the board for many of the top currencies central banks, pressure has been mounting on the Bank of England (BoE) and the European Central Bank (ECB). The BoE’s interest rate odds were driven up through the course of the week as Brexit fears and worries about the impact the coronavirus could have on the investor reliant GBP, shot up. The euro’s central bank also remains under pressure as support for EUR fell at the end of the trading week as the stock market rallied on the back of support from central banks. EUR also saw a drop after its Markit data disappointed investors with a decline in its services and composite Purchasing Manager’s Index (PMIs).
The market expects to see the BoE drop their rate on March 26 for their policy meeting, while the ECB will announce its policy decision next Thursday.
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