Central Banks: Waiting for ECB and FED’s Decisions

Central Banks: Waiting for ECB and FED’s Decisions

28 April 2020

Markets are awaiting the ECB and FED’s decision this week on interest rates as exchanges rates are a bit stalled with the exception of the Swedish crown that was a big mover after Sweden’s central bank last announcement.

Sweden Keeps Rates

                Swedish Riksbank has decided that interest rates will stay the same, as well as stimulus programme will be continued in order to support the economy during the coronavirus pandemic. Sweden is facing the worst crisis since World War Two, and markets impatiently waited for the Riksbank’s decision, hoping that interest rates will be pushed below zero. Last year, the Swedish central bank was the first one to drop negative interest rates. However, this time it refrained from any bold decision and kept rates at 0%. The lack of move was somehow expected, even though not in line with other major bank’s strategy – majority of them mulls changing interest rates. The Riksbank states though that it is better to use credit supply to fight the economic impact of the pandemic, than to manoeuvre with the interest ates which impacts also households and companies’ finances. According to experts, interest rates will remain steady in Sweden this and next year. After the Riksbank announced its decision, the Swedish crown exchange rate rose by 0.4% against the euro to the highest level since middle of March: 10.7905, meanwhile against the dollar it jumped by 0.7% to the two-week peak of 9.9450.

Not Much Going On

                Apart from the Swedish currency’s movement, not much movement was observed on the exchange rate market on Tuesday. Investors awaits for the ECB and FED’s meetings later this week. The USD has fallen by 0.3% to 99.970, against the six other major currencies as measured by the index. It was the lowest point in a week. The US dollar exchange rate was also weaker against the Japanese yen, hitting the level 107.055 yen per dollar. The euro went up by 0.2% in the exchange rate against the US dollar, to 1.08652 dollars. The British pound was up by 0.4% to 1.2468 dollars, while earlier in the day it tested the highest point in eight days – 1.2479 dollars. GBP also stood better in the exchange rate against EUR, trading at 87.02 pence, 0.1% higher, while earlier it traded at 86.91 pence, which was the eight-day high.

Waiting for FED

                Investors turn attention to this week meetings – first US FED on Tuesday with a statement coming on Wednesday. Expectations are that further stimulus to the economy to fight the coronavirus will be provided, and also markets look for guidance. So far, FED has led the global response to the coronavirus with a surprise move of cutting interest to zero and an aggressive programme of buying corporate credit and bonds. The programme was extended last night and now it includes municipal debt of smaller US cities. Now, it is unlikely that FED will make any move.

What Will ECB Do?

                The ECB will have its meeting on Thursday. It has less manoeuvre on rates than FED, but a huge stimulus bond-buying policy is under way. However, with uncertainty in eurozone, markets expect some bold actions, maybe even on Thursday. Due to this uncertainty, EUR exchange rate has been recently below expectations.