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Coronavirus spread sours market sentiment

BoE cuts rates

Markets experienced some extreme volatility last week as the spread of the coronavirus continued. The Pound sank to interbank levels as low as 1.23 versus the US Dollar, and 1.11 against the Euro, despite being as high as 1.32 and 1.15 last Monday morning. The Bank of England made a surprise emergency interest rate cut on Wednesday which pressured the Pound lower, ahead of British Chancellor Rishi Sunak's first Budget. The Pound had rebounded somewhat ahead of the Budget, but its reaction to Sunak's words was relatively muted. It could be an interesting week for the Pound with the release of influential labour market data due out on Tuesday, and the Bank of England's inflation forecast for the next 12 months scheduled for release on Friday. However, coronavirus developments are likely to dictate the majority of market sentiment, meaning economic data could be less influential than usual.

ECB doesn't deliver

The Euro softened on Thursday after the European Central Bank failed to give the monetary stimulus markets had been expecting. The European Central Bank announced it would expand its ongoing quantitative easing programme as well as introducing other stimulus measures, but didn't cut interest rates. This week, Eurozone Economic Sentiment data will be released, as well as the final inflation reading for February, which could create some EUR movement. However, markets are focusing significantly on stimulus measures, and general sentiment as the coronavirus spreads.

Two emergency rate cuts

The Federal Reserve has made two emergency interest rate cuts this month; one came at the start of March, and the second came overnight. Sunday saw the Fed announce it was dropping its main policy rate to between zero and 0.25%, while also launching a fresh round of quantitative easing. This level of stimulus has been unparalleled since the Global Financial Crisis over ten years ago. Federal Reserve Chief Jerome Powell said that the central bank would be cautious in increasing rates. US Advance Retail Sales data will be out tomorrow, alongside Industrial and Manufacturing Production stats which could provide some opportunity for USD movement.

Fresh decade lows

The Australian and New Zealand Dollars declined last week, with both currencies hitting fresh decade lows as coronavirus panic saw investors sell off riskier assets. On Sunday, the Reserve Bank of New Zealand announced a 75 basis point interest rate cut, with rates now residing at 0.25%. Policymakers also suggested they were ready to implement further stimulus measures, likely to be a large-scale asset purchase programme. There's now pressure on the Reserve Bank of Australia to consider cutting rates to support the Aussie economy further, after making a rate cut at the start of March. Rates currently reside at a record low of 0.5%, but still remain higher than the US Federal Reserve's.
This week, Australian labour market data will be out, which could be significant for the AUD exchange rate. Meanwhile, New Zealand's Q4 growth stats will also be revealed.

Rebounding from four-year lows

Last Friday the Canadian Dollar rebounded from a four-year low against the US Dollar, as stimulus hopes increased. The price of oil, one of Canada's most lucrative exports, also took an upswing, as central banks took action. In recent weeks the Bank of Canada has cut interest rates by 50bps, but said it would also provide billions of Dollars of further liquidity to help markets. Canadian inflation data and Retail Sales stats will likely be the most significant data events for the CAD exchange rate this week.