FED links the economic recovery directly to the health crisis
30 July

FED links the economic recovery directly to the health crisis


The Federal Reserve left interest rates near zero and is committed to support the recovery from an economic downturn, called the most severe “in our lifetime”, with all of its tools. In its statement announcing the policy decision, the Federal Open Market Committee said that the pandemic poses considerable risks to the economic outlook and that the federal fund rate would remain near zero until the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. Chairman Powell told reporters that supporting the recovery would need help from both monetary and fiscal policy.


Asian stocks were boosted this morning by the promise of ultra-easy monetary policy globally as the US Federal Reserve pledged to support the country’s virus-battered economy. In a mixed lead for Europe, Eurostoxx 50 was slightly higher and Germany’s Dax was flat after declines in banking stocks and carmakers. European shares opened lower after dismal earnings reports undid the confidence boost offered by the FED to keep stimulus taps open and help the coronavirus-ravaged economy. Investors are eyeing a slew of upcoming economic data, including German second-quarter GDP data, euro zone June unemployment numbers and final consumer confidence data.


The dollar has been tumbling on expectations the Fed will continue its ultra-loose monetary policy for years to come and on speculation it will allow inflation to run higher than it has previously indicated before raising interest rates. The dollar’s decline came as investors started to doubt the conventional wisdom that US economic growth and investment returns from the USD would be higher than many other countries. The Fed’s policy statement released at the close of its two-day meeting directly tied the economic recovery to an end the coronavirus health crisis. E-minis for the S&P 500 were 0.2% lower.


The greenback weakness has supported the euro in the currencies market after it hit a two-year high of $1.1807. It is now on course to post its biggest monthly gain in 10 years, having risen about 5% so far this month. The risk-sensitive Australian dollar slipped 0.5% to $0.7150 after hitting its highest levels since April 2019. Spot gold was off 0.56% at $1,957.2 an ounce. Elsewhere, the Turkish lira dropped to a 2-month low against the dollar and a record low versus the euro, on rising concerns over depleted reserves and local demand for dollars despite state efforts to stabilise trading.


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