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Dollar Dips to Five-Month Low Despite Fed’s Emergency Rate Cut

© PhotoDollar banknotes
Dollar banknotes - Sputnik International
A surprise basis point cut in interest rates spearheaded by the Fed in a bid to nullify the negative effect of the spread of the coronavirus on the greenback is believed will usher in new ones in the months to come, with various governments remaining on the verge of calling for new spending plans.

The dollar fell to as low as 106.85 yen on Wednesday, a five-month nadir. It fell to 0.9566 Swiss francs, equaling its weakest level in roughly two years.

In the meantime, the US Federal Reserve stunned traders by reducing rates by 50 points to a target range of 1.00% to 1.25%, with interest rate futures traders bringing up a high probability of a further 25 basis point cut in April, per the CME Group’s FedWatch Tool.

However, on 25 February, White House economic adviser Larry Kudlow told CNBC that the Fed is unlikely to cut interest rates to guard the country's markets from the harmful effects of the coronavirus, at a time when 53 cases were confirmed on Americal soil.

The rate cuts sent basic Treasury gains registered for the past 10 years to a record low of 0.906%, thereby failing to curb a massive sell-off of US equities and diminishing the general appeal of the greenback amid the coronavirus outbreak.

The sentiment became even more acute as G7 finance ministers issued a statement Tuesday that almost called for new government spending and instructed central banks to further cut interest rates, but stopped short of the measures.

The euro, quite the opposite, showed a slightly different trend, trading at $1.1173 on Tuesday, close to a one-month high, as investors bet the Fed will cut rates to a greater extent than the European Central Bank, prompting traders to turn to other historically safe financial havens - the euro, gold, or, arguably, digital currencies.

Both regulators have been criticised for failing to come up with a specific scheme to tackle a global recession caused by the novel coronavirus:

“The G7 and the Fed were not enough to support markets", said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo, adding the said Fed cut is “bad for dollar/yen", with the dollar’s weakness “reflected in the euro".

The Fed cuts come at a time when the international economy is being impacted by the spread of the Chinese-origin coronavirus. The virus codenamed COVID-19 has infected over 93,100 people and killed nearly 3,200 globally.

More than 70 countries have confirmed coronavirus cases, with China leading the tally, despite reporting a slight downturn in numbers of new cases.

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