FED Speech Led To Market Risk Aversion

FED Speech Led To Market
Risk Aversion  

The Novel Coronavirus continues to spark fear across
the world, with total cases now affecting more than 4 million people and
resulting in almost 300,000 deaths worldwide. With no up-to-date vaccine available
for the COVID-19 pandemic, countries across the world continue to struggle in
preventing a further outbreak, while at the same time preventing their economy
from falling out of control.

Since the outbreak of the virus, most countries’
governments and central banks are pressured to enforce large scale economic
stimulus (amounting to billions of $) to support the downfall in their economy.
With most countries still in lockdown to contain the virus outbreak, some
central banks are even considering to adopt negative interest rates.             

On Tuesday, US President Donald Trump urged the Fed to
ease further their monetary policy, spiraling expectations in the market that
the Fed might adopt negative interest rates. However, during the central bank
speech on Wednesday led by Chairman Jerome Powell, the Fed reiterated that they
are not considering negative interest rates. The dollar index received upward
support following the Fed’s hard stance on no negative interest rates.

However, gains on the dollar were limited after Powell
delivered a dovish speech on the outlook of the country’s economy. Powell
warned about an economic downturn being far worst than situation since World
War II. He also expects unemployment rate ahead to reach its peak due to the
impact of the virus, raising concerns of long-term economic damage.

Overall, the global economy is facing possibly the
worst recession since the Great Depression in 1930, where people are still
restless and uncertain about when the outbreak will end and things going back
to normal. With the market full of uncertainties, investors’ are still seeking
protection in safe-haven markets, including the dollar as they wait for the
discovery of an effective vaccine.    

As the world continues to battle against the COVID-19,
Regain Capital wishes to remind readers out there to constantly wash your
hands, stay hygienic, drink tons of water and keep social distancing. Stay
home, stay safe, stay healthy.        

Photo Credit: www.greenqueen.com.hk