The US Federal Reserve has decided to lower the federal fund rate range by 50 basis points before its regular meeting. The next one was planned for March 17-18, meanwhile yesterday (March 3) Fed decided to cut. However, opinions have already appeared on the market saying that such a move may occur faster than in the middle of the month.
This was the first emergency interest rate cut since 2008. In a statement to the decision, the Fed emphasized that it was closely monitoring the development of the coronavirus situation and its consequences for the economic outlook. The United States Central Bank has assured that it will use its tools and will take appropriate action to support the economy. After today's decision, the Fed has left open the way for possible next action on March 18, having two weeks to observe the situation and the impact of the coronavirus epidemic on companies and citizens.
The financial market reacted by the rapid volatility of stock indices, which finally record higher levels, and sell-off of the US dollar. USD seems to be depreciating at a very fast pace, as the profitability of maintaining dollar positions, which were one of the higher-interest ones, is much lower. In reaction to the Fed's intervention cut rates, the EUR/USD jumped by almost 90 pips. In turn, the USD/PLN exchange rate fell from 3.87 to 3.8360.
Investors' attention is directed towards the other central banks, including the European Central Bank, whether it will also take action before its official meeting. In this context, on Wednesday the Polish Monetary Policy Council conference may be equally interesting (at 16:00). On the one hand, high inflation in Poland does not justify cuts, and on the other, the prospect of a slowdown in the European economy is already so. Perhaps both forces will end and again interest rates in Poland will remain unchanged.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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