Major Central Banks Steps up to the Center Stage while WHO discusses Prevention Acts

Daily Update - 30th January 2020

Yesterday’s Market

• USD FED Interest Rate Decision

Yesterday’s Explained

 The euro declined against the U.S. dollar on Wednesday, as investors regained their confidence in the market after an outbreak of coronavirus in China. The newly identified coronavirus has created alarm because it is spreading quickly and there is little known about it. The death toll rose sharply to 132 on Wednesday, with nearly 1,500 new cases identified for a total of nearly 6,000.The euro was down 0.14 percent at $1.1006.

Sterling held near 1-week lows against dollar on Wednesday as investors awaited knife-edge rate decision by Bank of England. Money markets currently price a 46% chance of a 25 basis point rate cut to the BoE’s 0.75% policy rate - compared to around 70% at the start of last week. While the UK elections provided a dose of clarity about Brexit, the UK's upcoming exit from the EU – due one day after the bank's decision – has left its scars on the economy. It is still unclear what shape future EU-UK elections will have.

​From US, FOMC left the Fed funds rate unchanged at 1.50-1.75% as widely anticipated. The accompanying statement contained few changes which were skewed to a mildly dovish side. Given the Fed’s dissatisfaction over weak inflation and uncertainty over global growth, the market has now priced in over 80% that the Fed would lower interest rate by at least once this year.

Today's Market

• GBP: BOE’s Interest Rate Decision

• EUR: Harmonized Price Index

• USD: Gross Domestic Product

Today's Focus

The exceptionally high level of uncertainty regarding the BOE's rate decision is set to trigger high volatility. The most likely scenario is for a rate cut yet without a clear message about the next moves. The second option is for holding rates but signaling a move next time. In both cases, the voting pattern, as seen in the meeting minutes, is also essential to the reaction. A hawkish hold would trigger a rally while cutting rates, and committing to more would send sterling tumbling down. Both cases have low odds.

USD GDP Report, economic growth expected to be stable for the third quarter in a row. Business investment remains slow, sentiment has improved. Consumer spending remains good backed by the labor market.