LONDON, March 11 — The US dollar resumed its descent against the Japanese yen and Swiss franc today as fears over the spreading coronavirus pushed investors into safe havens, while the British pound recovered after Bank of England unexpectedly cut interest rates.
Central banks and governments around the world are scrambling to limit the economic damage of the coronavirus outbreak, which has sent stock markets into a tailspin as investors head for the safety of government bonds.
Sterling initially fell as much as 0.4 per cent against the dollar and 1.2 per cent against the euro after the BoE’s cut its benchmark rate by 50 basis points, to 0.25 per cent.
But the pound rebounded as the move — including actions to support bank borrowing — reassured some investors. The pound rose to US$1.2918, up 0.3 per cent on the day.
Against the euro, the pound was last up a third of a per cent at 87.74 pence per euro.
Britain’s finance minister, Rishi Sunak, is expected to direct further firepower at the British economy in his first budget later today, due at 1230 GMT.
The dollar was down particularly sharply against the safe-haven Japanese yen and Swiss franc. It lost 0.7 per cent to 104.90 yen, falling more than a full yen from Tuesday’s high of 105.915.
The US currency had fallen as low as 101.18 on Monday. While Japan may already be in recession, its currency usually rises at times of market stress because of the country’s current account surplus and its net creditor status.
The Swiss franc gained 0.6 per cent to 0.9346 franc per dollar. The euro also rose 0.5 per cent to US$1.13360.
The dollar had jumped yesterday as investors hoped global monetary policymakers would offer further stimulus to offset trade and travel disruptions. But lack of clarity on what Washington will do has kept many investors on guard.
US President Donald Trump said yesterday he would ask Congress for a payroll tax cut and other “very major” stimulus moves, but the details remain unclear.
“Nothing happened so there’s a bit of disappointment there. That’s probably because there’s some political problem and it can’t get through Congress,” said Kenneth Broux, FX strategist at Societe Generale.
“We know Trump likes to be seen over-delivering and to present big numbers. They are probably trying to scrape together what they can for a big announcement, but we will still have to wait ... There’s a risk the dollar could fall further, particularly if equities continue to fall.”
Money markets are fully pricing in a further 10 basis-point cut by the European Central Bank when it meets on Thursday.
The BoE rate cut follows similar moves by US and Canadian central banks and puts more pressure on the ECB to act, although it has limited room with rates already negative.
“The pound sold off initially on the aggressive move but the statement shows that their (BoE) action is co-ordinated with the Treasury and the measures include a package for lending,” said Jane Foley, senior currency strategist at Rabobank.
“Altogether the statement suggests lots of co-ordination. This is reassuring and should help limit the impact on the economy and that could also help support the pound.” — Reuters
