The stock indices are falling on Tuesday after yesterday's increases. The chairman of the Federal Reserve will address the statement to the Senate Banking Commission today. Among other things, Powell will say that interest rates will be kept at 0%. Germany and France are agreeing to set up a €500 billion recovery fund to support the economies most affected by the pandemic.
The Federal Reserve is committed to using the full range of tools to support the economy at this difficult time, US Federal Reserve President Jerome Powell wrote in his notes to the Senate Banking Commission.
Powell added that the Fed has been entrusted with an important mission and has taken unprecedented steps at a very rapid pace over the past few months. The tools used today are those used in crisis situations, so when economic and financial conditions improve, the central bank may abandon them and leave them for use in the future, if necessary. Jerome Powell also added that interest rates of 0% will be maintained until the economy is on track to achieve the objectives of maximum employment and price stability. The Fed chief's speech is scheduled for Tuesday, May 19 at 16:00.
Powell's weekend interview has encouraged investors around the world, including in the United States, causing a sharp rise in stock indices. It was also supported by economy de-freeze and the positive result of the first phase of tests for COVID 19 vaccine, conducted by the American company Moderna.
Today the indices seem to catch their breath after yesterday's rally. DAX 30 dropped by 0.4%, after the biggest increase since March 24th at the previous session. Germany and France agreed on Monday to establish a €500 billion recovery fund to support the economies most affected by the virus. According to the statement, the European Commission would be lending money on the financial markets and offering subsidies, not loans, to the Member States.
This statement could have helped the single currency. On Monday 18 May in the afternoon, the euro started to strengthen against most of the world's major currencies. The EUR/USD exchange rate rose to its highest level since early May. In turn, the increase in the EUR/CHF exchange rate led to the levels observed in early March. This last currency pair seems to be one of the most interesting, even despite its relatively low volatility. Deposit data show that the SNB still defends the franc (CHF) against excessive appreciation. Thus, a strong return and improved prospects for the eurozone economy could lead to the escape of trading capital to strengthen the Swiss currency.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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