(New throughout)
By Kate Duguid
NEW YORK, Feb 25 (Reuters) - The U.S. dollar index weakened
on Tuesday as expectations grew that the Federal Reserve would
cut interest rates this year to relieve pressure on the economy
caused by China's coronavirus outbreak.
The dollar rose last week to its highest level in years as
the virus spread further around the world, with investors
regarding all U.S. assets as safe havens. But the index has
fallen this week as other safe havens have risen because money
managers now think the Fed may be more inclined to cut rates
since it has the most room to do so.
Rate cuts are inflationary, lowering the value of the
dollar.
Expectations that the Fed will cut rates at least 25 basis
points at its June meeting were at 78.3% on Tuesday, according
to CME Group's FedWatch tool. The same tool shows a 4.1% chance
that rates will be in the current 150-175 basis-point range in
December, down from 28.6% a month ago.
"The potential for the economic fallout from the virus to
wash up on U.S. shores has cooled the dollar's rally to
three-year peaks by knocking Treasury yields to multi-year lows
and raising expectations for the Federal Reserve to deliver more
interest rate cuts to keep the record long expansion intact,"
said Joe Manimbo, senior market analyst at Western Union
Business Solutions.
Against a basket of six other currencies the dollar slipped
0.401% to 98.939 =USD , after reaching a three-year high of
close to 100 last week.
The index fell in step with the benchmark 10-year Treasury
note yield US10YT=RR , which hit an all-time low, driven by
safe-haven demand. That flight to safety also saw U.S. stock
indexes fall, with Wall Street's three major indexes down almost
2% on Tuesday. US/ .N
The U.S. Centers for Disease Control and Prevention (CDC) on
Tuesday alerted Americans to begin preparing for the spread of
coronavirus in the United States after the flu-like virus
surfaced in several more countries. Versus the euro, the dollar was modestly weaker, last down
0.28% at $1.088 EUR= . Market gauges of implied volatility in
euro/dollar eased on Tuesday after rising to their highest level
since October on Monday. EUR1MO=FN
The yen was 0.61% stronger at 110.04 per dollar JPY= .
China's yuan was last up 0.11% at 7.028 per U.S. dollar in
the offshore market, after rising to a five-day high earlier in
the session CNH= .