Forex – Euro Surges, Sterling Sinks as Central Banks Ease Panic

Forex – Euro Surges, Sterling Sinks as Central Banks Ease Panic

imageForexMar 02, 2020 03:09AM ET

By Geoffrey Smith — The euro hit its highest level in a month against the dollar in early trading on Monday, while emerging market currencies rebounded sharply, as comments from central bankers hinted at coordinated action to stabilize markets that are reeling from a coronavirus-induced panic.

The Bank of Japan followed the U.S. Federal Reserve overnight in promising, if need be, to support markets in the face of “growing uncertainties about the outlook for economic activity due to the spread of the novel coronavirus.”

The BoJ said it “will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.”

On Friday, the Federal Reserve had broken a wave of panic selling by saying that it would act “as appropriate to support the economy.” Although the language of the statement didn’t differ from previous Fed policy statements, the mere release of the statement was taken as a reassurance that central banks wouldn’t let market panic push the world into recession.

“The fundamentals of the U.S. economy remain strong,” Chairman Jerome Powell said.

The Bank of England also issued a statement Monday saying it would take all necesssary steps to safeguard financial stability.

Earlier, Bank of France Governor Francois Villeroy de Galhau told the BFM TV channel that the European Central Bank, too, is prepared to “do more” if needed to support the economy, but said he didn’t think that moment had arrived yet.

The release of final purchasing managers indices for February from IHS Markit and others may move that debate forward. The official Chinese PMI hit its worst ever level, according to data released on Saturday, while the Caixin PMI that covers the private sector also came in below expectations at 40.1 earlier on Monday. The People’s Bank of China said over the weekend that banks need not recognize SME loans as non-performing until June, a crucial support to the private sector.

By 3:05 AM ET (0805 GMT), the euro was at $1.1079, up 0.4% from late Friday, having earlier hit an intraday high of 1.1085, while the dollar index, which tracks the greenback against a basket of currencies, was down 0.2% a 97.91, its lowest in nearly a month.

Elsewhere, sterling continued to weaken, under pressure from comments by Prime Minister Boris Johnson over the weekend threatening to walk away from trade talks with the EU by June if the EU insisted on a role for the European Court of Justice in governing the free trade agreement being negotiated by the two. By 3:05 AM ET it was down 0.1% against the dollar at $1.2794, and down 0.9% against the euro at 1.1531.

Forex – Euro Surges, Sterling Sinks as Central Banks Ease Panic

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