Equity rout continues from virus fears, dollar unchanged
The global rout in equities continues today with most overseas markets down more than 3%. US equity futures indicate a lower open by over 2%. Investors are moving out of equities and into fixed income, the US Treasury 10-yr yield has dropped to 1.17%, an all-time low, and 2-yr note yields are under 1%. Volatility in all markets is high, a risk-off mood is pervasive.
February 28, 2020
EUR/USD 1.0964 GBP/USD 1.2839 USD/CAD 1.3453 AUD/USD 0.6504 USD/JPY 108.665 USD/CNH 6.9869 USD/ILS 3.4692 USD/MXN 19.7294 USD/CHF 0.9680 USD/INR 72.4670
After an earlier sell-off, the US Dollar Index is virtually unchanged from yesterday’s close. The dollar has been trading in a downtrend since February 20. Traders are expecting more rate cuts by the Fed, the first as early as March. Lower interest rates will be less attractive to investors, thereby reducing demand for the dollar. Economic stats released this morning for January were better than expected, but largely ignored with the virus’s impact in February yet to be available.GBP
The UK pound fell to a three-month low ahead of UK/EU trade negotiations, scheduled to start next week. Traders are also reacting to the UK’s near 5% current account deficit, which puts the pound in a vulnerable position.EUR
The euro is lower and well off earlier highs. Demand for the euro was higher than normal as traders unwind large “carry trade” positions. They had been investing in high-yielding EM currencies, financed by borrowing euros. This was a profitable trade over the last year, fueled primarily by low volatility in the currency markets and a generally weak euro. Increased volatility diminishes the attractiveness of such strategies.CAD
Despite weakness in the US dollar, the USD/CAD pair strengthened to its highest level since September as falling crude oil prices have continued to hurt the Canadian dollar. Growing coronavirus concerns weigh down global energy demand, pulling crude oil prices lower.ASIA/PACIFIC
The Chinese yuan is slightly stronger overnight. The USD/CNY currency pair is trading just below the key 7.00 level.
Demand for the Japanese yen as a safe-haven currency has led the yen to its best weekly performance since mid-2016 and the biggest increase among the major currencies.