U.S. dollar struggles as traders price in more Fed cuts

The U.S. dollar fell on Thursday amid expectations of the Federal Reserve will cut interest rates further, after slashing them by 50 basis points this week in an emergency move to shield the economy from the effects of coronavirus. The Fed had mentioned the epidemic 48 times in its latest Beige Book report, suggesting policymakers were highly concerned about the economic damage of the disease.

Versus the safe-haven Japanese yen, the dollar’s weakness was more pronounced. Dollar-yen was last down 0.7% at 106.81 , a five-month low. Low U.S. yields and the prospect of even more monetary easing added pressure to the dollar, though data showing U.S. services activity at a one-year high had pushed it higher against the euro in Asian trading. Former Vice President Joe Biden’s victories in the Democratic primaries also helped the dollar. Biden is considered less likely to raise taxes and impose new regulations than rival Bernie Sanders.

But the coronavirus outbreak weighed more strongly on the dollar and other major currencies. Mainland China reported a rise in new infections on Thursday, deaths are mounting globally, Italy has closed its schools and California has declared a state of emergency as cases there increase. The Canadian dollar was down 0.1% against the U.S. dollar at 1.3399, after the Bank of Canada joined the Fed in cutting rates by 50 bps – its largest cut in 10 years – and leaving the door open to further easing. Falling oil prices also put pressure on the loonie. The Bank of England is leaving rates unchanged for now, and sterling rose to a one-week high of $1.2931 and a three-day high versus the euro of 86.22 pence.

U.S. dollar struggles as traders price in more Fed cuts, Reuters, Mar 5