Dollar falls in New York after Fed's emergency rate cut

Market Review - 04/03/2020  00:00GMT  

Dollar falls in New York after Fed's emergency rate cut

The greenback ended gave up early gains made in Asia and Europe and ended lower against majority of its peers on Tuesday due to Federal Reserve's 50 basis point surprise interest rate cut in New York session to reduce the negative impact of coronavirus on global growth.  
  
Reuters reported the U.S. Federal Reserve cut interest rates on Tuesday in an emergency move designed to shield the world's largest economy from the impact of the coronavirus.    In a statement, the central bank said it was cutting rates by a half percentage point to a target range of 1.00% to 1.25%.   
"The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate," the Fed said a statement.    The decision was unanimous among policymakers.    The Fed's decision to cut interest rates before its next scheduled policy meeting on March 17-18 reflects the urgency with which the Fed feels it needs to act in order to prevent the possibility of a global recession.   
  
Versus the Japanese yen, although dollar rebounded to 108.53 in Australia, price met renewed selling and fell to 107.67 in Asia on active safe-haven yen buying as worldwide spreading of coronavirus triggered worries over global monetary easing before rebounding to 108.13 in European morning. However, price later tumbled to session lows of 106.94 on usd's broad-based weakness after Federal Reserve's surprised 50 basis points rate cut as well as selloff in the U.S. Treasury yields and then moved broadly sideways.  
  
Although the single currency gained from 1.1121 to 1.1155 in Asia, price met renewed selling and later fell to session lows at 1.1096 at New York open due to cross-selling in euro. However, the pair then erased its losses and jumped to a 2-month high at 1.1213 on usd's weakness before retreating to 1.1148 on profit-taking.  
  
Reuters reported euro zone consumer prices grew more slowly in February than in January, as expected, data from the European Union's statistics office showed on Tuesday, as the spread of the coronavirus around the world depressed oil prices.    Eurostat estimated that consumer prices rose 1.2% year-on-year in February after a 1.4% rise in January, in line with a Reuters poll of analysts.   
The slower growth was mainly due to -0.3% year-on-year fall drop in energy prices. Without it, and excluding the volatile unprocessed food prices, inflation accelerated to 1.4% year-on-year from 1.3% in January.    An even narrower measure that also excludes alcohol and tobacco prices and that is watched closely by many bank economists also accelerated to 1.2% from 1.1% in January.   
  
The British pound found renewed buying at 1.2741 in Australia and remained on the front foot in Asia and gained to 1.2812 in European morning, price then briefly retreated to 1.2763 but rose again to 1.2816 due partly to upbeat UK construction PMI data. Despite weakening to 1.2768 at New York open, cable then rallied to session highs at 1.2844 due to usd's weakness before moving broadly sideways.  
  
Reuters reported a measure of Britain's building industry turned positive for the first time in nearly a year in February as Prime Minister Boris Johnson's election win boosted economic sentiment for the second month in a row, a survey showed on Tuesday.    The IHS Markit/CIPS UK Construction Purchasing Managers' Index (PMI) rose to 52.6 from 48.4 in January, just below the Reuters poll forecast of 48.8 and representing less of a jump than in the previous month.    But the index showed growth for the first time since April 2019 -- after the extension of an original Brexit deadline -- and hit its highest level since December 2018.   
  
In other news, Reuters reported the finance ministers of the Group of Seven (G7) nations will monitor the coronavirus outbreak closely and they have all options on the table, if needed, to counter a global economic downturn, German Finance Minister Olaf Scholz said on Tuesday.     "As G7 finance ministers, we have just discussed to monitor the situation regarding the coronavirus very closely. Should the need arise, we have all the means to counter a global downturn," Scholz said in a statement posted on Twitter.     In a joint statement, G7 finance ministers and central bank governors earlier on Tuesday said they would use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks from the coronavirus.   
  
Data to be released on Wednesday :  
  
Australia AIG construction index, real GDP, New Zealand building permits, Japan Jibun Bank services PMI, China Caixin services PMI, Germany retail sales, Markit services PMI, Swiss CPI, Italy Markit services PMI, GDP, France Markit services PMI, EU Markit services PMI, retail sales, U.S. MBA mortgage applications, ADP national employment change, Markit services PMI, ISM non-manufacturing PMI, and Canada Bank of Canada interest rate decision.