By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The U.S. dollar resumed its decline against the Japanese yen and Swiss franc on Wednesday, as fears over the spreading coronavirus pushed investors into safe havens, even as sterling recovered after the Bank of England unexpectedly cut interest rates.
Central banks and governments around the world are scrambling to limit the economic damage of the coronavirus outbreak, which has sent stock markets into a tailspin as investors head for the safety of government bonds.
Investors were also disappointed after President Donald Trump made no major announcements on stimulus measures. Expectations that Trump will unveil a significant stimulus plan had bolstered risk appetite on Tuesday and prompted investors to temporarily move away from safer assets.
U.S. President Donald Trump said on Tuesday he would ask Congress for a payroll tax cut and other “very major” stimulus moves, but the details remain unclear.
Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York, said U.S. leadership on the coronavirus issue seems lacking.
He added that this has created a “clear vacuum in the markets and other authorities are trying to step into the void to calm financial markets and restore a semblance of trust and confidence in a system that is quickly spinning out of control.”
Sterling initially fell as much as 0.4% against the dollar and 1.2% against the euro after the BoE cut its benchmark rate by 50 basis points, to 0.25%.
But the pound rebounded as the move – including actions to support bank borrowing – reassured some investors. The pound was last up 0.3% at $1.2954 <GBP=D3>.
Against the euro, the pound slipped 0.1% to 87.65 pence per euro .
The dollar was down sharply against the safe-haven Japanese yen and Swiss franc. It lost nearly 1% to 104.62 yen, falling more than a full yen from Tuesday’s high of 105.915.
The dollar also fell 0.7% against the Swiss franc to 0.9336 franc <CHF=>, while the euro rose 0.6% to $1.1340.
Against a basket of currencies, the dollar fell 0.3% to 96.061.
Money markets are fully pricing in a further 10 basis-point cut by the European Central Bank when it meets on Thursday.
The BoE rate cut follows similar moves by U.S. and Canadian central banks and puts more pressure on the ECB to act, although it has limited room with rates already negative.
“The pound sold off initially on the aggressive move but the statement shows that their (BoE) action is coordinated with the Treasury and the measures include a package for lending,” said Jane Foley, senior currency strategist at Rabobank.
“Altogether the statement suggests lots of co-ordination. This is reassuring and should help limit the impact on the economy and that could also help support the pound.”
Graphic: World FX rates in 2020 http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Iain Withers in London; Editing by Nick Zieminski)