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Currency point: Central Banks are at it again

22 June 2020

After last week’s second wave risks, central banks have been quick to step in to shore up possible economic ramifications. Banks around the world used either strong policy action, language or a combination of both.

The Bank of England was the standout by ramping up its QE program. The Monetary Policy Committee (MPC) injected a further GBP100bn to the Asset Purchasing Facility which now stands at GBP745bn. It didn’t hit the ‘negative rates’ button just yet leaving the Bank Rate unchanged at 0.10%. It should be noted that Chief Economist Haldane dissented on the vote to add more QE (wanted it to remain unchanged) and is a key player in the negative rates debate he is the one to watch going forward. 

The MPC’s moves do highlight the UK’s economic vulnerabilities there are grave concerns over labour market and the need to provide further accommodation should the economy fail to perform. Interestingly GBP pairs and crosses bounced initially as the mean forecast had been looking for near enough to a GBP200bn increase, but there is a clear GBP short currently.

Swiss National Bank left rates in check with a negative interest rate of -0.75%, its reasonings was inflation remained depressed and growth prospects are declining over their forecasted period. It also mentioned that it would intervene if the strength in the CHF continued. That ‘true’ safe-haven characteristic of the CHF is really hurting the Swiss economy. 

Norges Bank also left rates in check at 0% but is now forecasting a ‘lift’ in rates from 2022 on an expected recovery story.

The Federal Reserve also acted on the sign of fragility stating it was going to step in and buy individual corporate bonds. Must be nice having the State’s bank there to bank role your liabilities. US risk assets (equities) took this as a big positive, but in FX land is was met with a little more caution. USD was flat against the JPY but rose against all other G10 currencies, would have expected EUR/USD and AUD/USD to back this but they didn’t. 

Which, continues the trend in DXY, since it technically rejected 100 then became double blessed with fundamentals – a scenario that’s still intact. Traders remain long USD due to the overbought nature of EUR/USD and AUD/USD and no real fundamental reasoning in other pairs to put pressure on traders to exit newly entered long positions in the USD.



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