Fed Cuts Rates 1%
The currency markets were rocked by two fresh easing announcements on Monday.
In a dramatic, unscheduled move, the Fed eased its headline funding rate by a full 1%. It also announced that it will extend its asset purchase program by $700 billion. With this latest cut, the Fed has now eased its policy rate by 1.5% this month. Rates now stand at lows of 0%.
Given that the Fed is due for its March FOMC meeting this week, a further unscheduled move highlights the severity with which it is viewing the current economic situation. Traders will now be looking to the Fed statement and press conference on Wednesday for a deeper insight into the bank’s view on the situation.
The unexpected Fed rate cuts are eerily similar to the way it was operating during the Global Financial Crisis in 2007 – 2009. However, this time around, the Fed is acting even more aggressively by slashing rates sooner.
This suggests that either the Fed has learned from its previous approach, or that it considers the current economic threat from coronavirus particularly grave.
Commenting on the new level of asset purchases, Fed chairman Powell explained:
“The primary purpose of these securities purchases is to restore smooth market functioning so that credit can continue to flow.”
BOJ Announces Fresh Easing
The Bank of Japan followed the Fed shortly after with its own easing announcement.
As with the ECB, the BOJ opted to steer clear of employing a rate cut. Instead, it announced that it will be stepping up the level of its exchange-traded fund purchases to $112 billion per year.
Monday’s announcement marks the first time in over three years that the BOJ has announced easing measures. This again underscores the growing concern among central bankers.
The BOJ announced that it will also provide loans of 8 trillion yen against corporate debt as collateral with an interest rate of 0% and maturities of up to a year
Explaining the new measures, BOJ governor Kuroda told reporters:
“We decided to take these measures to ensure smooth corporate financing, while maintaining stable financial markets and preventing further deterioration in confidence among companies and households…The spread of the coronavirus infection is raising uncertainty in the global economy, and volatile moves are continuously seen in domestic and overseas financial and capital markets.”
USDJPY has seen very volatile swings over recent weeks. The bounce off the 101.19 support level saw price trading all the way back up to test the 108.33 level resistance. This, for now, is holding.
However, while price holds above the 104.65 level, a further push higher is likely. A retest of the broken bullish trend line the next technical area to watch. Above there, the yearly highs around 112.28 will be the next zone on watch.