FOREX-Dollar regains footing after Fed-driven stumble

Published 04/03/2020, 13:22
Updated 04/03/2020, 13:27
© Reuters.  FOREX-Dollar regains footing after Fed-driven stumble
DXY
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* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Yoruk Bahceli and Marc Jones

LONDON, March 4 (Reuters) - The dollar recouped some losses

on Wednesday as traders looked to see which other major central

banks might follow the U.S. Federal Reserve and make emergency

cuts to their interest rates.

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 has been one of the currencies to climb on the

broad-based dollar weakness of recent weeks and it had slipped

back to $1.1145 EUR=EBS ahead of U.S. trading from Tuesday's

two-month high at $1.12135.

"We are looking at how the central bank community is going

to react now," said TD Securities' European Head of Currency

strategy, Ned Rumpeltin.

Could more central banks make emergency cuts? "We are

expecting the unexpected. We are not taking anything for granted

here," he added.

Money markets in the euro zone 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 also pricing a 50% chance of a second, 25 bps cut

in April by the Fed though some analysts are already talking

about U.S. central bank hitting zero percent before the end of

the year. FEDWATCH

"The dollar's weakness is reflected in the euro, because the

Fed will likely ease more than the ECB," said Masafumi Yamamoto,

chief currency strategist at Mizuho Securities in Tokyo.

The dollar, which also fell to a five-month low of 106.85

yen JPY=EBS in Asia on Wednesday, was last up 0.35% at 107.51

yen. It was also up 0.2% against a basket of currencies. .DXY

The chance of a swift cut from the Bank of England GBP=D3

brought sterling down to $1.2792, 0.2% on the day. Uncertainty

about trade talks between Britain and the European Union is

weighing on sterling too.

There were also other factors to digest for the dollar.

Joe Biden made a surprisingly strong showing on Tuesday

across the South, Midwest and New England in the contest to

select a Democratic challenger to U.S. President Donald Trump in

the Nov. 3 election.

"The resurgence of Joe Biden will help to dampen some of the

downside risks for the U.S. dollar given fears over a sharper

shift to the left under Bernie Sanders have eased," wrote MUFG

currency analyst Lee Hardman.

In the Chinese onshore market, the yuan CNY=CFXS touched a

six-week high of 6.9288 per dollar, 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.

Coronavirus hits financial markets https://tmsnrt.rs/2TI8YnE

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