The US dollar fell against the British pound, losing 0.9% of its value as the US Fed announced an emergency interest rate cut on Sunday evening, before reversing its losses. Currently the GBP/USD exchange rate sits at 1.22676, at the time of writing.
The move came from the Fed following an effort to relieve a shortage of dollars in financial markets. This meant that USD fell in value against other major currencies, allowing a momentary moment of weakness to prevail the dollar. The US Fed Reserve cut rates to a target range of 0% to 0.25% and said that it would expand its balance sheet by at least $700 billion in coming weeks. US policymakers made the decision as a response to a brutal months-long sell-off in financial markets due to coronavirus concerns and the economic impact of the spread across the globe as nations go into lockdown in an attempt to contain the COVID-19 virus.
Us Federal Reserve Slashes Rates in Emergency Cut
On Sunday evening (US time) the United States Federal Reserve announced another interest rate cut. The cut came as a shock to the market, even US President Donald Trump noted in a conference meeting last night that he had only just received word of the cut moments before taking the stand. He did however note that he was very proud of the move and that it was a great thing for America. The move came as US policymakers attempted to provide dollars to their financial institutions which are facing stress in the credit markets as well as attempting to combat the economic impact of the global spread of coronavirus.
The rate cut, which saw the rate drop from 1-1.25% to 0-0.25% came as a shock to markets and thus sent the dollar lower. As a rule of thumb, when a central bank makes a significant (and unexpected) rate cut, the currency usually loses value and weighting in the market.
Access to USD Being Supported Globally
The Fed, the Bank of Canada, European Central Bank, the Bank of England, the Bank of Japan (BOJ) and Swiss National Bank agreed to offer three-month credit in US dollars on a regular basis and at a rate cheaper than usual. The move was designed to bring down the price banks and companies pay to access US dollars, which has surged in recent weeks as a coronavirus pandemic spooked investor. The Fed had already cut interest rates by half a percentage point on March 3 at an emergency meeting, the first emergency cut since the financial crisis in 2008, but that move failed to stem market volatility.
Sterling finds itself under pressure from the US dollar as international investor capital dries up, one of sterling key support pillars, due to the COVID-19 virus spread. Also weighing on the pound is the likelihood of a further interest rate cuts by the Bank of England, with CME’s Bank of England Watch Tool estimating the chances of a cut within the next week at 100%.
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