U.S. Federal Reserve Cuts Benchmark Interest Rate in Response to Coronavirus Concerns

This morning the U.S. Federal Reserve slashed its benchmark interest rate by 50bp to the 1.0%-1.25% range. This move was in response to the continued concerns about the economic impact of the coronavirus. The Fed’s statement said the U.S. economy remains “strong. However, the coronavirus poses evolving risks to economic activity."

The 50bp cut is impacting all markets: U.S. equity markets saw an immediate 2.5% rally which, as of this writing, has reversed. The benchmark U.S. 10-yr bond is yielding 1.06%—60bp lower than one month ago. Gold and Silver are up +2.8% and +2.6% respectively. WTI Crude is +2.2%.

So, what does this mean for the U.S. dollar (USD)? And what does it mean for your business? The USD had enjoyed strength over the past two year, with the USD Index +12% from its February 2018 lows. This strength was driven by both interest rate differentials (US rates yielded over 2% more than EUR rates) and also the booming U.S. economy.  

Today’s rate cut and possible economic slowdown are hurting the USD as the main drivers of USD strength are showing some weakness. This movement is giving exporters an opportunity to hedge better FX rate levels while the USD weakness is giving importers grief. Here’s a quick look at how the recent movement can be impacting your business:

• EUR – the Euro +0.6% stronger early this morning

• JPY – the Japanese Yen is +1.25% stronger today

• MXN – the Mexican peso is +0.5% stronger today

• AUD – the Aussie dollar is +0.75% stronger today

Feel free to contact your Xe salesperson if you’d like to discuss the impacts to your business.