The dollar slid in another seismic shift to price in more US interest rate cuts on Thursday, as President Donald Trump sapped market confidence with a coronavirus plan light on details. The greenback dropped as far as 1% to 103.32 yen, fell as much as 0.6% to $1.1333 against the euro and lost 0.6% to the safe-haven Swiss franc.
Riskier currencies were punished as the fearful mood sent the Australian dollar down 0.6% and the South Korean won skidding 1%, and losing even more ground to the rising yen. Trump announced on Wednesday a ban on travellers from 26 European countries entering the United States for a month.
He unveiled economic steps to counter the virus but his address from the Oval Office was light on medical measures beyond assurances that "the virus has no chance against us". "The market was looking for more," said Moh Siong Sim, currency strategist at the Bank of Singapore.
"A travel ban is part of the solution, but the more important parts are still missing. They are really the public health measures: Paid sick leave, free testing, free treatment," he said. "The market is right now looking for perhaps more action from the Fed, given the disappointment from the White House."
Indeed, futures markets reacted swiftly. They are now pricing in the US Federal Reserve moving the lower end of its benchmark funding band to zero when it meets next week. "The deflationary shock that we had assumed would trigger a US entry into the zero-yield world is turning out to be a combo of trade war, oil price war and COVID-19 virus," J.P. Morgan's long-term strategists Jan Loeys and Shiny Kundu said in a note.
"(There are) close to even odds now of an official US recession this year." Trump's address came with markets already in turmoil amid a string of increasingly dire news on the coronavirus. The longest bull run in US stock market history has ended, with market talk that selling to cover margin calls was keeping gold and bonds from rallying.
The World Health Organization overnight described the outbreak as a pandemic. Italy, where deaths rose by nearly a third overnight, has shuttered all shops except supermarkets, food stores and pharmacies. The yen was last up 0.8% on the greenback and soaring against other currencies, with gains around 1% on the Australian and New Zealand dollars and 2% on the won.
Australia on Wednesday announced an $11.4 billion stimulus package including wage subsidies and cash payments to small businesses - though the Aussie slid further with the glum mood and growing recession fears. The British pound last stood at $1.2803, near this week's low.
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