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By XE Market Analysis March 11, 2020 2:46 pm
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    XE Market Analysis: Asia - Mar 11, 2020

    The Dollar index recovered to highs of the week in N.Y. trade on Wednesday, though risk-off conditions returned, with markets continuing to react to the widening coronavirus crisis, which the W.H.O. finally declared a pandemic, and uncertainty over what U.S. fiscal stimulus measures may be at hand. Wall Street was crushed again while Treasury yields fell further, though remained above recent record lows. On the data front, a slightly warmer U.S. CPI print had little impact on the market. EUR-USD fell to 1.1258 from near 1.1340, as USD-JPY recovered briefly above 105.00 from lows under 104.40. USD-CAD peaked at 1.3761, while Cable headed under 1.2860.

    [EUR, USD]
    EUR-USD fell to lows of the week, bottoming at 1.1258 into the London close, and down from 1.1340 at the open. The Euro's move lower was likely prompted by strong odds the ECB will deliver a stimulus package on Thursday, and judging by leaked comments from ECB's Lagarde, it seems as though the central bank head was ready to act even before the BoE's announcement. There isn't much room for rate cuts although a 10 bp cut in the deposit rate is a possibility, even if this will have largely a signaling effect. The ECB is likely to tweak exemptions to limit the costs for banks. More targeted loan programs to secure funding for companies hit by virus disruptions - especially small and medium sized enterprises, will have more of an impact and is very widely anticipated now.

    [USD, JPY]
    USD-JPY fell from pre-opening levels near 105.30 to a low under 104.40 in early trade. A 10-plus bp drop in the U.S. T-note yield and concurrent sharp narrowing in the U.S. over Japan yield advantage has been a bearish cue for the pairing, along with risk-off conditions. Markets are fully discounting a 25 bp rate cut from the Fed at the March-18th FOMC meeting, with a chance of there being a 50 bp move. The BoJ, in contrast, has less room for monetary policy adjustment, while the yen is widely seen as a natural safe haven currency. Sub-100.00 levels look like a real possibility in USD-JPY, assuming, as looks likely, the coronavirus continues to spread, with the W.H.O. today declaring the coronavirus a pandemic.

    [GBP, USD]
    The Pound took a hit in early London trade, although subsequently pared losses, after the BoE unexpectedly announced an intra-meeting emergency rate cut of 50 bp, which put the repo rate at 0.25%. Cable posted a one-week low under 1.2830 before recouping to around 1.2900. The pairing bounced to 1.2960 in N.Y. trade, later easing to 1.2860 into the London close. The U.K. government later unveiled a very expansionary budget, with a fiscal stimulus package worth GBP 30 bln. The baseline scenario is that Covid-19 will have a "significant" but "temporary" impact on the U.K. economy, but the government pledged that the NHS will get whatever funding it needs, with a GBP 5 bln emergency response fund unveiled today.

    [USD, CHF]
    EUR-CHF was relatively steady under 1.0600, after dropping to a fresh five-year low of. 1.0544 on Monday, reflecting safe haven demand for the Swiss currency as concerns rise about the global economic disruptions being caused by efforts to contain the COVID-19 virus. The Swiss franc can be expected to rise further in the coming days, as the virus continue to spread.

    [USD, CAD]
    USD-CAD topped at 1.3761 at late-morning in North American trade, remaining under Tuesday's trend high of 1.3796. Another weak session for oil prices has supported, as has another risk-off session. The prospects for further oil price weakness as Saudi opens the production spigots further, should keep USD-CAD on the rise. The next upside target is 1.3859, seen in February of 2016.

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