* Euro soars as Fed cut expectations hit dollar
* Money markets price 3 Fed cuts by July
* Euro/dollar volatility surges
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Tom Westbrook
SINGAPORE, Feb 28 (Reuters) - The dollar nursed losses on
Friday after its worst day against the euro in nearly two years,
as the global spread of the coronavirus fired up expectations
for a U.S. rate cut and pushed the hunt for yield elsewhere.
The worsening outbreak now has money markets all but certain
the Federal Reserve will lower its benchmark lending rate next
month, which was priced as just a 9% chance only a week ago.
FEDWATCH
Futures pricing shows investors now expect three Fed cuts by
mid year, as stock markets have crumbled to be on track for
their worst week since the depths of the 2008 crisis. 0#FF:
That shift in pricing, coupled with a plunge in U.S.
Treasury yields, makes owning dollars less appealing and sent
the euro 1% higher on the greenback overnight as investors
unwound carry trades.
"People were getting comfortable in understanding why the
dollar was so strong," said Ray Attrill, head of FX strategy at
National Australia Bank in Sydney.
"That is, U.S. equities powering ahead, the U.S. economy
looking better than other parts of the world and yields looking
impenetrably attractive. All of the above are to some extent
being questioned now," he said.
At the same time, European Central Bank policymakers played
down immediate prospects of easier policy there. On Friday, the dollar was steady at $1.1001 per euro, just
above a three week low, and headed for its biggest weekly loss
on the single currency since last June.
It also dropped 0.9% against the Swiss franc overnight
CHF= , as the spread of the virus to the United States had
investors preferring the franc as a safe haven. The huge shift in money markets also stemmed the flight of
capital out of Asian and commodity currencies and in to dollars.
EMRG/FRX
The heavily sold Australian and New Zealand dollars, each
down more than 6% against the greenback this year, steadied on
Friday.
The Aussie AUD=D3 last bought $0.6569 and the kiwi
NZD=D3 $0.6292.
A great deal is still unknown about the virus itself, but it
is clear that it can be lethal and that the pathogen and
measures to contain it are wreaking havoc on supply chains, the
world's economy and financial markets. MKTS/GLOB
More than 2,700 people have died. The World Health
Organization said overnight that every country should be bracing
for more cases. World share prices are headed for their worst week since the
darkest days of the 2008 financial crisis and everyone is on
edge.
One-month volatility seen in euro/dollar options, which was
near record lows, has shot up to its highest since early October
EUR1MO= , posting its steepest rise in nearly three years over
the week.
"While markets have already moved considerably, until the
virus data says otherwise, the trading strategies should
probably still err (towards safety)," Deutsche Bank strategist
Alan Ruskin said in a note. "Buy gold, short oil," he said.
"Initially, the USD weakness is expected to be only modest
versus alternatives like the yen, franc and euro; and, the
dollar should strengthen versus commodity FX and emerging
markets' currencies."