The yen and the euro rose against the dollar on Monday on growing expectations that the U.S. Federal Reserve will cut interest rates at its policy review this month to protect the economy from the rapid spread of the coronavirus.
As U.S. shares were routed in recent days, Federal Reserve Chair Jerome Powell said on Friday the central bank will “act as appropriate” to support the economy in the face of risks posed by the coronavirus epidemic.
Investors took his comments as a hint that the Fed will cut interest rates by at least 0.25 percentage point at its next scheduled meeting on March 17-18.
There is even increasing chatter of an unscheduled move, with a U.S. bank lobby economist saying a coordinated global interest rate cut by the top central banks could happen as early as on Wednesday.
The expectations around the Fed underscored the speed and scale of the virus’ spread from China through to dozens of countries and the potentially crippling blow to the global economy.
Investors expect the dollar’s yield advantage – a key support for the U.S. currency – to shrink as the European Central Bank and the Bank of Japan are seen having limited room for further cuts given their rates are already in negative territory.
Selling spread to some emerging market currencies.
The Mexican peso and the South African rand both lost more than 1% in early Monday trade.
The Turkish lira , which has been weighed by the country’s intensifying involvement in fighting in Syria, slipped a tad to record lows.
Among developed market currencies, the pound is seen more vulnerable than its peers at time of major economic crisis as UK’s sizable current account deficit meant the country depends on foreign capital.
Investors are also fretting about Britain’s negotiations with the European Union over a trade deal and whether a UK budget next month will include much more spending, which many investors say is necessary to boost economic growth.