Financial markets gripped by fear and new paradigm as US treasury yields plummet
The dollar’s safe-haven status is helping it remain strong vs. many currencies but the safe-haven Japanese yen and Swiss franc are surging. The British pound and the euro are also significantly higher vs. the US dollar as the Fed is seen cutting interest rates faster than other central banks.
March 6, 2020
EUR/USD 1.1339 GBP/USD 1.3017 USD/CAD 1.3408 AUD/USD 0.6635 USD/JPY 105.1200 USD/CNH 6.9298 USD/ILS 3.4915 USD/MXN 20.2861 USD/CHF 0.9332 USD/INR 73.7825
The dollar is down today despite non-farm payroll numbers for February (+285K) coming in much better than expected (+175K) with prior 2 months increasing by a total of 85K - a much stronger number all the way around. However, these figures are generally considered pre-coronavirus and during a time when the weather in the US was unseasonably mild boosting construction and tourism hiring. March and April employment numbers will likely show a shrinking job market due to coronavirus.GBP
Sterling rallied yesterday afternoon and continued the trend this morning, as markets priced in a new, much lower US Treasury curve. Although Bank of England governor Mark Carney said the central bank still has “a lot of ammunition” to combat the coronavirus and “will take all necessary steps to support the UK economy” the Federal Reserve is still expected to cut rates faster than the BoE.EUR
The euro continued its march higher and is now up 4% from February lows. Gains have come after the Fed cut its rate by 50bps to 1.25%. The European Central Bank's equivalent rate is now negative 0.50% with a meeting next week. Euro strength will continue for now with some market participants eyeing the 1.15 level.CAD
The Canadian dollar is slightly stronger as the markets believe the Federal Reserve will continue to cut rates faster than the Bank of Canada. Also, oil prices are much weaker today and will likely test the lows of $42bbl (WTI) from December 2018. Some oil market forecasters now believe oil could sink to $26 which was the low of February 2016.ASIA/PACIFIC
The Japanese yen rallied strongly to 105 on coronavirus uncertainty and US treasury rates sinking to historic lows.
Chinese authorities set the renminbi at 6.94, slightly weaker given the demand in Asia for US dollars. China is focused on keeping their currency firm hoping to show stability as global market convulse.