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Did the Fed push the panic button to avoid another market meltdown?

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US Federal Reserve Chairman Jerome Powell

By Jameel Ahmad, Global Head of Currency Strategy and Market Research at FXTM

Desperate times call for desperate measures.

For the second time in a matter of weeks and just days before the Federal Reserve were previously scheduled to announce the conclusion of its upcoming monetary policy meeting, another emergency US interest rate cut was announced with the latest one hours prior to international financial markets opening for the new trading week.

One can’t help but wonder whether the Fed made this announcement on a Sunday shortly before international markets commence weekly trading to avoid another market meltdown for investors in stock markets.

Not only has the Federal Reserve thrown all of its tools out of the toolbox to help combat the economic pressures that the coronavirus will bring to the world economy, it has done so by firing all of its guns, grenades as well as bazookas at the problem and it can’t be helped to hold concern following this move regarding what ammunition does the Fed truly have left?

Nations around the world remain in the stage of announcing fresh control measures to prevent the spread of the coronavirus, and with cases still rising at an alarming rate the implications this will have on the world economy will naturally amplify. So, investors will still demand more from central banks and world governments.

For this reason, I don’t think what the Fed has announced will be enough for investors to buy back into stock markets. Volatility is moving at such an intense speed to coronavirus news that an investor can no longer expect for central bank decisions to remain current by the end of the same day, let alone in a week that has followed the sharpest declines seen in world stock markets since the global financial crisis.

The early aftermath of the Fed announcement suggests a weaker USD with both the EURUSD and GBPUSD advancing by close to 0.5% and just above 1%, respectively at time of writing but with the World Health Organisation announcing that Europe is now the epicentre of the virus these trends in FX remain at risk to living a very short shelf live.

Should central banks continue to announce emergency measures the impact it has on Gold price will be high on the radar of investors, and it should increase the probability of gold pointing higher after it unexpectedly suffered its worst week since 1983 in the week prior.

 

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