The US dollar on Friday slid to a seven-week low against the Japanese yen after US Federal Reserve Chair Jerome Powell suggested that the central bank could cut interest rates in the wake of COVID-19.
Powell said that the central bank would “act as appropriate” to support the US economy in the face of risks posed by the coronavirus epidemic, but added that the economy remained in solid condition.
The yen was on track for its largest daily gain since May 2017 as investors moved into the safe-haven currency. It had strengthened to as high as ￥107.52 versus the US dollar and was last trading up 1.51 percent at ￥107.92.
The US dollar index was last down 0.324 percent to 98.127, down about 1 percent this week on rising expectations of a rate cut by the Fed. A cut of at least 25 basis points at the Fed’s meeting this month was fully priced in on Friday, versus expectations of 57.6 percent on Thursday.
Some investors suggested that the Fed could even cut rates sooner.
“It’s likely that markets will force the Fed to cut even before the March 18 meeting, and the question is, will that matter? Will that be enough to settle down markets in the near term?” Diamond Hill Capital Management Inc chief investment officer for fixed income Bill Zox said.
The yield on the two-year US Treasury note, which moves with expectations of changes in rate policy, has fallen by about 32.5 percent this week.
The rapid spread of the coronavirus increased fears of a pandemic, with six countries reporting their first cases and the WHO raising its global spread and impact risk alert to “very high.”
“The yen is significantly stronger from where it was even last week, when I was hearing people saying that the yen wasn’t a safe-haven anymore. We’re now back to appropriate levels,” TD Securities global head of foreign exchange strategy Mark McCormick said.
One additional factor supporting the yen could be that Japan’s public pension funds have been rebalancing assets, he said
“I think it’s pretty clear that the [Japanese Government Pension Investment Fund] is trading ahead of the announcements of their weights, which if you think about what they’ve done over the past five years, they’ve created an allocation that leans much more towards global equities, global credit, global fixed income — which in this environment would see dollar-yen rally as they’re pushing some of their flows outside of Japan,” McCormick said.
In Taipei on Thursday, the New Taiwan dollar rose against the US dollar, gaining NT$0.053 to close at NT$30.330, an increase of 0.2 percent from NT$30.403 on Feb. 21. Turnover totaled US$1.04 million during the trading session.
The market was closed on Friday for the 228 Memorial Day long holiday weekend.
Additional reporting by staff writer
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