USD Sinks as Coronavirus Weighs on Fed Reserve Rate Cut Odds

US Dollar Exchange Rate: USD volatility as Federal Reserve Drops Rates to 0-0.25%

The US dollar observes its losses on Friday after its worst day against the euro in nearly two years, as the global spread of the coronavirus fired up expectations for a US Federal Reserve rate cut and pushed the hunt for yield elsewhere. The worsening coronavirus outbreak now has money markets all but certain that the Federal Reserve will lower its interest rate next month, which was priced as just a 9% chance only a week ago. As pressures have built over the course of the week, the US dollar has looked less desirable to investors. Futures pricing shows investors now expect three Fed cuts by mid-year, as stock markets have crumbled to be on track for their worst week since the 2008 financial crisis.

USD sent lower, allowing EUR to edge as GBP falters

As coronavirus fears are ramped up, a shift in pricing for a Fed rate cut has been made. As a result of that shift in pricing, coupled with a plunge in U.S. Treasury yields, it makes owning dollars less appealing and has sent the euro 1% higher on the greenback overnight as investors unwound carry trades. The market has noted that investors were getting too comfortable in the US dollar being so strong, with US equities powering ahead, the US economy striving forward and yields looking impenetrably attractive. These factors are now being somewhat questioned now, noted Ray Attrill at the National Australia Bank in Sydney.

Meanwhile, the GBP has struggled against its major rivals at the latter stage of the week following a heightened fear of a ‘no deal’ Brexit. The UK government threatened the EU with this outcome if a deal is not struck between the two by June 2020. As a result the GBP fell, with the US dollar also falling this week, both currencies have struggled to find their feet, meaning a rather flat rate between the GBP/USD as the week ended.

EUR gains on USD weakness, as Brexit complications could help the dollar

The dollar’s recent unexpected weakness has allowed the euro to gain on the currency. With a 1% increase on the dollar overnight, the euro looks to be heading in the right direction for attracting investors. The Eurozone’s central bank, the ECB played down the prospects of an interest rate cut from themselves earlier in the week. Meanwhile, the British pound is expected to sink lower on Brexit woes which could offer USD traders a window of opportunity to edge over the Sterling in the weeks ahead as Brexit negotiations get underway. The market has noted that it is unlikely that the GBP/USD pairing will make any big moves in the week ahead as investors are likely to refrain from putting any aggressive bets, preferring to wait on the side-lines ahead of the EU-UK trade talks which are set to start Monday.

The pressure of the coronavirus continues to threaten nearly all currencies and economies across the globe, with USD now struggling, there seems little hope for other currencies as the US dollar was once one of the biggest gainers during the crisis as a safe haven. Meanwhile, world share prices are headed for their worst week since the darkest days of the 2008 financial crisis and everyone is on edge. More than 2,700 people have died from the disease and the World Health Organization said overnight that every country should be bracing for more cases.

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