The dollar fell against negative-yielding reserve currencies such as the EUR, JPY and CHF, as coronavirus fears sent Treasury yields to record lows and markets briefly priced in expectations for at least three Fed rate cuts this year, possibly starting at the March 18 meeting.
Earlier this month, when the COVID-19 outbreak started slowing in China and before it accelerated in other countries, the market was only pricing in about two Fed cuts this year, and perhaps not beginning until September.
Because the ECB, BOJ and SNB already have negative policy rates, any cuts they make are expected to be a small fraction of those done by the Fed, whose current target rate is 1.75%.
The USD index was down 0.5% in early New York afternoon after hitting its lowest since Feb.
EUR/USD has rallied back above January’s lows and very nearly retraced half of its Dec.
31 to Feb.
20 slide at 1.1009.
U.S. Q4 GDP was unrevised, though the deflator slipped to 1.3% from 1.5% previously.
The modestly above-forecast U.S. claims miss and today’s U.S. durable goods and housing data beats were largely disregarded amid the virus angst.
That angst sent S&Ps, the N225 and the DAX below their 200-DMAs and the indexes more than 10% below their recent highs, erasing the majority of their recoveries from last year’s trade war lows.
USD/JPY made a new low for the week before bouncing as the tug-of-war between the haven yen and dollar persists and Japan braces for a likely recession.
PM Abe asked that all schools be closed as of Monday as part of the effort to contain the virus there.
GBP/USD dipped toward 2020’s low, but the main action was in EUR/GBP’s continuing rebound as EUR spec shorts get squeezed and on doubts about the UK outlook heading into Brexit talks with the EU next week.
Once again, commodity and EM currencies struggled with further risk-off flows, while gold was firm on those flows and the drop in yields.
Lots of Japanese data out Friday, but the focus, beyond virus headlines, will more likely be on German February jobs and CPI data and U.S. January personal consumption and expenditure data and February Chicago PMI and final Michigan sentiment.