Group of 7 finance chiefs issue weak statement promising to support efforts to fight coronavirus
The dollar weakened throughout yesterday as markets expect central banks and governments to pour on stimulus and backstops to protect the economic fall-out from the coronavirus. Today’s G7 statement left markets wanting as it lacked details, leading the dollar to rebound some. Bond markets are signaling more turmoil ahead as the US 10-year bounces around 1.14%, a 40% drop in yield since the start of the year.
March 3, 2020
EUR/USD 1.1122 GBP/USD 1.2795 USD/CAD 1.3373 AUD/USD 0.6580 USD/JPY 107.83 USD/CNH 6.9776 USD/ILS 3.4566 USD/MXN 19.4678 USD/CHF 0.9577 USD/INR 73.2975
The dollar drifts up as uncertainty clouds yesterday’s optimism after weak economic data out of eurozone and the G7’s listless statement. The Trump administration is discussing ways to contain the economic impact of the coronavirus with a tax cut being considered; however, Mnuchin and Ludlow prefer a rate cut by the US Fed. Democrats in the US vote in primaries in 14 states today as centrist nominee Joe Biden hopes to capitalize on a recent surge in momentum. Trump’s presidency is generally perceived to be supportive of the dollar.GBP
The pound is slightly weaker this morning after UK PM Boris Johnson warned the nation yesterday that there will be a significant increase in the number of UK cases of the coronavirus. FX markets expect the Bank of England to cut interest rates at a meeting later this month.EUR
Eurozone PPI for January came in worse than expected at -0.5% YoY while CPI data for February was in line at 1.2% YoY. The euro is down slightly vs. the US dollar. French President Macron faces another backlash due to his proposed pension reforms with the opposition party calling for a vote of no confidence in his leadership.CAD
The Canadian dollar weakened as markets await tomorrow's Bank of Canada rate decision. Investors expect the central banks to cut rates to support the economy in the face of the global pandemic. Canada’s central bank rate is currently 1.75%, essentially matching the United States.ASIA/PACIFIC
The Aussie dollar gained vs. the US dollar after the central bank cut interest rates to 0.50% and signaled a willingness to work closely with the government on fiscal and monetary stimulus.
The Chinese renminbi has remained stable below the important 7 level vs. the dollar. China provided the G7 with a template on how to fight economic impact of coronavirus – provide ample liquidity to the banking sector and promise loans to business to get them through the temporary disruption caused by the illness.