Market Brief: BOE Cuts Rates by 50 Basis Points; Nikkei 225, Asian Stocks Lower on Risk Aversion

Summary:
• The BOE took the markets by surprise this morning as it announced an emergency 50 basis point-rate cut ahead of European trading.

BOE Follows the Fed and Cuts Rates by 50 Basis Points

The biggest news in this Asian market session was the emergency rate cut announced by the Bank of England (BOE). According to its announcement, the official cash rate will be lowered by 50 basis points from 0.75% to 0.25%. Meanwhile, its bond purchase program will remain at 435 billion GBP.

So far, the reaction across pound pairs has been muted. GBPUSD initially fell over 100 pips to an intraday low of 1.2828. However, the currency pair has steadied soon after as it trades at 1.2889. The support the confluence of support at the trend line and 61.8% Fib level that I pointed out earlier is still valid.

GBPAUD Outlook

We see a similar muted reaction on GBPAUD. As of this writing, the currency pair is still finding support at its previous highs at 1.9770. If pound sellers dominate trading later on in the day, we may see the currency pair trade lower. Near-term support is at the 100 SMA and 200 SMA at 1.9590 and 1.9430, respectively. The latter price also coincides with the rising trend line when you connect the lows of January 14, January 20, and March 4.

It’s also worth considering that markets have been welcoming of stimulus lately. This emergency rate cut by the BOE could attract pound bids because it would help support the UK economy amid the coronavirus outbreak. A reversal candle around its current price could mean that GBPAUD may have enough buyers in the market. The currency pair may soon then rally to resistance around the 2.0000 handle.

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Nikkei 225, Shanghai Composite Index, and Hang Seng Index Down

As for the Asian stock market indices, risk aversion once again pushed equity prices lower. The Nikkei 225 sustained at 450.91-point or 2.27% loss at 19,415.99. Meanwhile, the Shanghai Composite Index was in the red by 0.94% or 28.244 points lower at 2,968.517. As for the Hang Seng Index, it is trading in the red by 0.67% or 170 points at 25,225.3.

Yesterday, stocks traded higher after US President Donald Trump announced that the government may soon announce fiscal stimulus measures to support the economy. However, policymakers have not released details of their plan. It also does not help that the number of confirmed cases of the coronavirus has risen to over 1,000 in the US.