By Saqib Iqbal Ahmed
NEW YORK (Reuters) – The dollar climbed against a basket of currencies on Wednesday after an emergency interest rate cut in the previous session by the U.S. Federal Reserve shoved the U.S. currency down to an eight-week low.
Investors were likely waiting to see which other major central banks might follow the Fed and make emergency cuts to their interest rates, as they try to fend off the economic damage from the spreading coronavirus, analysts said.
The U.S. central bank surprised investors by slashing rates by 50 basis points to a target range of 1.00% to 1.25% on Tuesday, two weeks before a regularly scheduled policy meeting, in an effort to combat the effects of the coronavirus.
The dollar index <=USD>, which measures the greenback’s strength against a basket of six other major currencies, was 0.24% higher at 97.365. The index slipped as low as 96.926 on Tuesday, its weakest since Jan. 8.
“The dollar has found its feet after a phase of underperformance against the euro and some other major currencies,” Jonathan Coughtrey, managing director at Action Economics, said in a note.
Upbeat data also supported the greenback.
U.S. private payrolls increased more than expected in February, pointing to labor market strength before a recent escalation of recession fears ignited by the coronavirus epidemic.
U.S. services sector activity accelerated to a one-year high in February, suggesting underlying strength in the economy despite the coronavirus outbreak.
On Wednesday, the euro
“With the ECB about to cut imminently, it has deflated the euro balloon a bit,” Stephen Innes, chief market strategist at Australian FX services provider AxiCorp, said, referring to the European Central Bank.
Money markets in the euro zone are pricing a 90% chance that the ECB will cut its deposit rate, now minus 0.50%, by 10 basis points next week
The Canadian dollar
Bailey said any BoE measures would be best done in tandem with Britain’s government, curbing expectations the bank might follow Tuesday’s emergency rate cut by the Fed.
The pound was about flat against the greenback at $1.2817.
(Graphic: Coronavirus hits financial markets – https://fingfx.thomsonreuters.com/gfx/mkt/13/2852/2817/Pasted%20Image.jpg)
(Reporting by Saqib Iqbal Ahmed; Editing by Jonathan Oatis)