Euro near two-month highs, dollar inches up after Fed cut

The euro held near two-month highs and the dollar recouped some losses on Wednesday as traders evaluated the impact of an emergency Fed rate cut a day earlier. The Fed surprised investors by slashing rates by 50 basis points to a target range of 1.00% to 1.25% on Tuesday, two weeks before a regularly scheduled policy meeting, in an effort to combat the effects of the coronavirus.

The euro was one of the currencies to benefit most from the broad-based dollar weakness as traders bet the Fed would cut rates more than the European Central Bank. The euro rose 0.1% in early London trade to $1.11760, but remained shy of Tuesday’s two-month high at $1.12135. Money markets in the eurozone are pricing a 90% chance that the ECB will cut its deposit rate, now minus 0.50%, by 10 bps next week ECBWATCH. They are pricing a 50% chance of a second, 25 bps cut in April by the Fed.

In the onshore market, the yuan touched a six-week high of 6.9288 per dollar in early trade, another sign of the dollar’s weak bias. It shrugged off a survey showing China’s services had their worst month on record in February. Sterling bought $1.2792, down 0.2% on the day. Uncertainty about trade talks between Britain and the European Union is weighing on sterling, along with growing expectations for UK interest rate cuts.

Euro near two-month highs, dollar inches up after Fed cut, Reuters, Mar 4