Early Fed rate cut sparks market anxiety, Dollar on the defensive

04.03.2020 - Petr Mazaylo
Early Fed rate cut sparks market anxiety, Dollar on the defensive

Early Fed rate cut sparks market anxiety, Dollar on the defensive

The U.S. Dollar on Wednesday after an early Federal Reserve cut rates by 50 basis points, sparking anxiety within the markets about the impact of the virus.

The Fed move came as a surprise to investors as the cut came 2 weeks ahead of a regularly scheduled policy meeting. This resulted in the Greenback nearing 5-month lows against the Japanese Yen while it hovered near the lowest in 2 years against the Swiss Franc.

Investors have been fleeing to safe haven assets as rate cuts were seen as insubstantial to soften the economic disruption caused by the global outbreak of the novel coronavirus. Among most currencies, the Euro was one to benefit from the Dollar’s decline after investors speculated that Fed cuts would outnumber those of the European Central Bank.

Furthermore, a bleak view perceived toward G7 strengthened after a statement on Tuesday failed to specifically respond to the global economic slowdown brought about by the spread of the virus.  

“The G7 and the Fed were not enough to support markets,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“This Fed rate cut is bad for dollar/yen, partly because Treasury yields are now very low. The dollar’s weakness is reflected in the euro, because the Fed will likely ease more than the ECB.”

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