March was a tumultuous month for financial markets. As the coronavirus (COVID-19) pandemic spread westward, bringing with it lockdowns for many countries, "risk-off" sentiment surged. Policy makers across the globe scrambled to mitigate the adverse economic impacts of the virus and the shutdowns, with some measures unprecedented in nature. "Safe-haven" currencies outperformed, whilst others sold off in drastic fashion. A collapse in oil prices added fuel to the fire.
The GBP depreciated 3.2% against the USD in March. The GBP found itself in the bucket of "risk-on" currencies during a month of extreme "risk-off" sentiment, and had fallen as much as 10.4% by 19 March. During daily briefings, Prime Minister (PM) Boris Johnson asked all cafés, gyms, cinemas, and other non-essential shops to close indefinitely, before asking the public to stay at home.
The UK was one of the few countries to take quick, coordinated, policy action in response to the virus. On 11 March, the Bank of England (BOE) cut its policy rate by 50bp to 0.25%, the same day the UK Chancellor Rishi Sunak pledged a fiscal stimulus of GBP30bn. The BOE cut rates by another 15bp to 0.10% on 19 March, and announced a GBP200bn increase in corporate and government bond holdings. Chancellor Sunak announced further fiscal measures on 20 March, including 80% of wages to be covered (up to GBP2,500 a month) for businesses disrupted by the virus, as well as an extra GBP7bn in welfare support. Despite the proactive policy measures, it was not enough to prevent the GBP from plummeting amidst extreme "risk-off" sentiment.
A large fiscal stimulus from the US and increased USD funding from the Fed as well as a partial equity rebound helped the GBP to reverse much of its heavy losses, and it ultimately ended the month down 3.2% against the USD.
The RMB weakened 1.3% against the USD in March. Being the first to encounter the outbreak and implement lockdown measures, China was one of the first to see a drastic deterioration in its economic data – in what would be a forewarning to the rest of the global economy. On 4 March, Caixin PMI services for February plunged to a record low of 26.5, from 51.8 in January. On 16 March, retail sales (YTD, YoY) contracted by 20.5% in the combined period of January and February, versus the expected 4% contraction. Industrial production for the same period came in at -13.5%, below the -3.0% consensus. On 31 March, the National Bureau of Statistics of China (NBS) PMIs for March did show an expansion from the previous month, but this was more of a sequential effect given the record lows in February.
Amidst the sobering data, China eased both monetary and fiscal policy during the month. On 13 March, the People’s Bank of China (PBOC) announced it will cut the reserve requirement ratio by 50-100bp for certain banks. Then on 16 March, the Ministry of Finance (MOF) announced it will allow both households and companies affected by COVID-19 to delay payment of taxes, or pay in instalments. USD-CNY remained relatively stable during the first half of the month due to the sequencing effect in Asian currencies; however, USD-CNY rose sharply on 18 and 19 March (by 0.6% and 0.9% respectively), as demand for the USD dominated.