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Collinson FX: June 11, 2020 - Economic euphoria but significant risks remain

by Collinson FX 11 Jun 06:56 PDT 30 May 2020
Wired - RNZYS Club Marine Insurance Winter Series - May 16, 2020 © Richard Gladwell / Sail-World.com

Collinson FX: June 11, 2020 - Economic euphoria but significant risks remain

The FOMC ended their two day meeting and left rates unchanged, promising continued support for the economy. The Fed predicted interest rates would remain at historical lows until at least 2020, and that it would take until then for the labour market to recover. The Fed predicted a contraction in US GDP, of 6.5%, the biggest since WW2. The headline, of this important Fed meeting, is the 'QE Infinity' will continue for the foreseeable future. Equity markets rallied on the back of this predictable outcome, as the ocean of cheap money seeks return.

The historically extreme lows in US interest rates and rising economic sentiment has allowed the Dollar to continue the safe haven retreat. The EUR rallied to 1.1400, while the GBP hit 1.2800, reflecting the Fed's monetary policy and economic confidence. Economies are re-opening across the world and this has boosted the trade exposed commodity currencies. The NZD spiked to 0.6570, following the Fed's announcement, while the AUD rallied strongly to 0.7050.

Markets are caught in a short term economic euphoria, with the re-opening of global economies, but significant risks remain. The virus is on the rise in some US States, while the China crises appears to have been relegated to the back seat, as the US copes with their internal riots and crises. China and the repercussions for the CCP's aggressive behaviour, remain the big risk to the vulnerable trade exposed economies and their currencies.

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