Extraordinary Times, Extraordinary Measures

Not since the 2008 financial crisis have traders witnessed such high levels of volatility within the currency markets. GBP/USD dropped over 11% and hit a low of $1.1450, whilst GBP/EUR moved over 12% to just above €1.05.

In an attempt to stimulate the global economy following the outbreak of Covid-19, the Bank of England cut interest rates to an all-time low of 0.1% and announced £200bn of quantitative easing. The Federal Reserve also cut their base rates to essentially zero and launched a $700bn quantitative easing programme. And the European Central Bank finally confirmed a €750bn asset purchase programme to help stabilise their ever-vulnerable trading bloc.

The Federal Reserve also extended its currency exchange programme to more central banks around the world, providing between $30-$60bn in funding to Australia, Brazil, Denmark, Korea, Mexico, Norway, New Zealand, Singapore and Sweden. The lines are known as dollar swaps and will be in place for six months.

The numbers are historic, and the effects have been immediate. Some of the dollar strength due to high levels of risk-aversion is beginning to subside whilst the price of crude oil and stock markets values are beginning to rise.

There is still uncertainty on how much long-term impact these extraordinary moves by the central banks will have, but they will no doubt go some way to minimising the impact of the global recession firmly on the horizon.