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Dollar resumes descent against safe-haven currencies as virus spreads

imageForex17 hours ago (Mar 11, 2020 12:48AM ET)

(C) Reuters. Dollar resumes descent against safe-haven currencies as virus spreads

By Hideyuki Sano

TOKYO (Reuters) – The dollar resumed its descent against the safe-haven Japanese yen and the Swiss franc on Wednesday as investors worried over how much governments and central banks can do to limit the economic damage from the coronavirus epidemic.

The moves mirrored falls in U.S. equity futures and U.S. bond yields in Asian trade on Wednesday, as the spread of the virus in major economies threatens to brake business activity and curb consumer spending.

The dollar lost 0.8% to 104.67 yen , down more than a full yen from Tuesday’s high of 105.915.

The dollar had fallen to as low as 101.18 on Monday. While Japan may already be in recession, its currency normally rises at times of major financial market stress because of the country’s current account surplus and its net creditor status.

The Swiss franc gained 0.45% to 0.9358 franc per dollar while the euro also rose 0.5% to $1.1336 (EUR=).

The dollar had jumped on Tuesday as investors hoped global monetary policymakers will launch further stimulus plans aimed at bolstering economies hit by trade and travel disruptions.

But a lack of clarity on what Washington will do has kept many investors on guard.

U.S. President Donald Trump said on Tuesday he will ask Congress for a payroll tax cut and other “very major” stimulus moves, but the details remain unclear.

“It is too early to say the market sentiment has turned positive. Yesterday’s rebound in the dollar and in risk assets is a type of a rebound you often see in a downtrend,” said Shinji Ishimaru, senior currency analyst at MUFG Bank.

“In addition to economic measures, the focus will be on how much the U.S. can contain the infections to keep the economy going. That is a very big unknown,” he said.

The U.S. Centers for Disease Control and Prevention (CDC) reported on Tuesday 696 new cases of coronavirus, an increase of 224 from its previous count, and said the number of deaths had risen by six to 25.

Investors are also expecting the U.S. Federal Reserve to cut interest rates by at least 0.5 percentage point at its policy review next week, in addition to its emergency rate reduction earlier this month.

It is not clear if such a move could boost investors’ risk tolerance after global equities had tumbled following the Fed’s surprise rate cut just over a week ago, market players said.

But that will surely diminish the dollar’s yield advantage over other major currencies, which has been a main driver of the dollar’s strength in the past few years.

Financial markets are also betting the European Central Bank will cut its interest rates by 0.10 percentage on Thursday. Still with interest rates at minus 0.50%, many investors think the ECB has limited room for additional cuts.

Dollar resumes descent against safe-haven currencies as virus spreads

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