After slumping in three consecutive trading days, the US Dollar traded flat on Thursday (27 / February) this morning. The US Dollar Index (DXY) is moving at 99.15, up 0.15 percent from the daily Open level.
The weakening of the US Dollar stalled in line with the strengthening of the US equity market. However, many experts predict that current conditions will be limited, given the stock market is still in a choppy-trade condition and investors continue to monitor the Coronavirus issue. The latest, the virus from China has infected countries that are not directly related to China, including Italy and Iran.
"We are still transfixed by the movements of the equity markets," said Shaun Osborne, an analyst at Scotia Capital. "However, the range (at the moment) is still limited. I don't think there are that many people are overly hoping for a rebound in the equity market right now. In a day without much data releases, we will continue to keep an eye on stocks."
Previously, the decline in the US Dollar occurred as a result of investors returning to speculation about the Fed's monetary easing. This was done in response to the widespread of the Coronavirus. Dozens of cities in South Korea and Italy were forced to contain themselves to stem the spread of the plague, following China which has done the same for cities around Wuhan since January.
Interest Rates Cut to Avoid Collapsing Assets
The US Federal Reserve is expected to cut interest rates again to sustain growth conditions. Moreover, some investors view that the US economic immunity against the effects of the COVID-19 virus will not last long.
However, Fed Deputy Chairman Richard Clarida said that it was too early to expect the central bank to need changes in its monetary policy. Apart from that, Clarida stressed that the Fed is also watching closely the impact of the Coronavirus on the US economy. This statement is in line with Robert Kaplan's comments that highlight similar issues.
The comments of the Fed officials triggered a decline in Rate Cut expectations. According to the CME Group's FedWatch Tool survey, the prospect of US interest rate cuts for the FOMC in June has fallen from 80.8 percent to 79.2 percent.
The panic caused the collapse of higher risk assets such as Wall Street stocks. Conversely, many investors are eyeing US bonds which are known as one of the top safe havens. As a result, US bond yields collapsed. This resulted in market participants being forced to erase expectations of a Fed rate hike, while at the same time pushing up expectations of a cut.
US Dollar Rally Stops, Some Currencies Begin Moving
The US Dollar Index (DXY) corrected deeper in today's trading (25 / February), although the Greenback is still the currency of choice amid the escalation of the Corona COVID-19 virus outbreak.
At the time the news was written, DXY had retreated from the 99.91 level which was the highest peak of the month to the 99.16 level. Because the domino impact of the Coronavirus outbreak is feared to push the US central bank to cut Fed interest rates.
Fed Funds Futures data shows that the market now takes into account another Fed rate cut in June, and at least a 50 basis point cut by the end of 2020. Inevitably, the US dollar buying stalled.
As a result of the cessation of the US Dollar rally, some major currencies managed to stabilize the position. AUD / USD and NZD / USD are moving sideways in today's trading, while EUR / USD recorded a slight increase in the range of 1.0858. The Japanese Yen also successfully restored its position to around 110.43, after briefly weakening to 112.22 in trading last week.
