LONDON, Feb 25 — The US dollar stayed soft today amid expectations that the Federal Reserve may cut interest rates this year to curb downside pressure on the economy caused by China’s Covid-19 outbreak.
The dollar initially rose as the virus spread further around the world, with investors eyeing all US assets as safe-haven investments. However, money managers now think the Fed would be more likely to easy monetary policy and cut rates given that it benefits from the biggest room to do it.
Against a basket of currencies the dollar was 0.2 per cent weaker at 99.19, drifting away from the three-year high reached last week. However, without much good news on the virus, few expect the dollar to give back too much of its recent gains.
The euro was last up 0.1 per cent at US$1.0863 (RM4.60), drifting away from the three-year low it fell to last week, sending it below US$1.07 as money flooded into the safe-haven dollar.
Market gauges of implied volatility in euro/dollar eased off a bit today after rising to their highest since October yesterday.
Japan’s Prime Minister Shinzo Abe said today that clusters of coronavirus cases had emerged in the country and that the government would take stronger steps to fight contagion, giving Asian investors another reason to stay cool on the yen, which has been tripped off its safe-haven status recently.
The yen last traded up 0.2 per cent at 110.53 per dollar.
China, meanwhile, reported a rise in new Covid-19 cases in Hubei province, the epicentre of the outbreak, even though the rest of the country saw a fourth-straight day of declines.
South Korea, which has the most virus cases in Asia outside China, reported 60 new cases today, increasing the total number of infected patients there to 893 — leaving few to expect the region’s currencies to do more than hold steady for now.
China’s yuan was last up 0.2 per cent at 7.0225 per US dollar in the offshore market, a five-day high.
Lee Hardman, currency analyst at MUFG, said he expected “some downside risk for the US dollar” going further given the Fed’s potential dovish shift in policy.
Market participants continue to build up expectations for further Fed easing, with money markets pricing in a 25 basis points cut for the meeting in June.
For the year as a whole, traders expect the central bank to lower rates to between one per cent and 1.25 per cent, down from the current 1.5 per cent to 1.75 per cent range. — Reuters
