NEW YORK (Reuters) – Investors fled riskier assets for safe-havens like the American dollar on Wednesday after U.S. data underlined fears that damage to the global economy from the coronavirus outbreak will be long and protracted.
The U.S. dollar index <=USD>, which had fallen in the four previous trading days, rose as high as 99.98, but returned some of those gains, last trading up 0.71%. U.S. Treasury bonds, another traditional safe-haven, saw yields fall as demand for the debt drove prices higher.
Against other traditional safe-havens the dollar gained modestly: It was last up 0.31% against the Japanese yen <JPY=> and 0.47% stronger against the Swiss franc <CHF=>.
The Commerce Department on Wednesday reported that U.S. retail sales suffered a record drop in March as mandatory business closures to control the spread of the novel coronavirus outbreak depressed demand for a range of goods, setting up consumer spending for its worst decline in decades. [nL2N2C227V]
The New York Federal Reserve also reported on Wednesday that its Empire State manufacturing index, which tracks activity in the sector for New York State, fell to an all-time low that was more than double the consensus Wall Street forecast. [nN9N28N01H]
“The IMF’s overnight report, which downgraded global growth more than expected, along with the record downturn in U.S. retail sales, and the huge drop in U.S. industrial production, all combined to see a rush into the safe-haven USD,” wrote analysts at Action Economics.
The global economy is expected to shrink by 3% during 2020, a collapse in activity that will mark its steepest fall since the Great Depression of the 1930s, the International Monetary Fund said on Tuesday. [nL2N2C20G5]
A fall in oil prices on expectations that production cuts by OPEC may not be enough to support crude during a global demand crunch also weakened riskier currencies, with the oil-exposed Norwegian crown and Canadian dollar down sharply. [O/R]
The Norwegian crown <NOK=> fell almost 2% against the U.S. dollar, while the Canadian dollar <CAD=> was down more than 1.5% versus the greenback.
The Bank of Canada on Wednesday said the coronavirus outbreak was set to trigger the biggest ever near-term Canadian slump. The central bank held interest rates steady at 0.25% as expected, added provincial and corporate bonds to its quantitative easing program, and said it “stands ready to adjust the scale or duration of its programs if necessary”. [nL2N2C21NP]
Graphic: World FX rates in 2020 https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html
Graphic: FX positions https://fingfx.thomsonreuters.com/gfx/mkt/xklvylznpgd/FX%20positions.JPG
(Reporting by Kate Duguid in New York and Iain Withers in London; Editing by Tom Brown)