Oil and coronavirus pose major risks

The dollar steadied somewhat on Tuesday after heavy losses against the yen, the euro and the Swiss franc, but traders warn the risks to the greenback remain high as policymakers try to fight off the widening fallout from the coronavirus epidemic.

The U.S. currency started to grind higher as Wall Street stock futures rose, and bond yields bounced, after U.S. President Donald Trump said the White House will hold a news conference on Tuesday about economic measures in response to the virus.

U.S. Treasury Secretary Steve Mnuchin also said the White House will meet with bank executives this week in a sign the U.S. government is preparing to roll out more measures to soften the blow from the spread of the flu-like virus.

However, analysts say it is too early to call a bottom in the dollar, which was pummelled on Monday after a price war between Saudi Arabia and Russia triggered the biggest daily rout in oil prices since the 1991 Gulf War.

“Expectations for a coordinated policy response are something that is evolving and ultimately this could help,” said Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney.

“But in the short term the dollar is driven by expectations for U.S. Federal Reserve easing.”

The dollar rose 2.3% to 104.73 yen , pulling back from the lowest in more than three years.

The yen also wobbled against major crosses, such as the euro and the Australian dollar, after Bank of Japan officials indicated their readiness to ramp up stimulus if needed before a policy meeting next week.

Against the euro, the greenback rose 0.72% to $1.13500 after falling on Monday to its lowest in more than a year against the common currency.

The dollar rose 1.2% to 0.9361 Swiss franc on Tuesday after three days of heavy selling pushed it to the lowest in almost five years. Data suggests the Swiss National Bank is now ramping up its market interventions to weaken its currency.

Against the pound , the U.S. currency rose 0.7% to $1.3036.

The dollar gradually accelerated after U.S. stock futures opened higher and Treasury yields climbed off record lows.

Oil futures also bounced in Asia on Tuesday after the previous day’s dive, as global markets tried to regain some composure, but many traders warn that recent turmoil has been so dramatic that risks are still tilted down.

The plunge in crude prices on Monday was yet another jolt to financial markets, which were already reeling as investors counted the mounting economic costs of a global coronavirus epidemic.

In the onshore market, the yuan rose a tad to 6.9330 per dollar. Chinese officials said growth in the number of new cases of the coronavirus, which emerged in the central Chinese province of Hubei late last year, is slowing.

However, its rapid spread in Italy and the United States is likely to keep investors on edge.

Money markets show the Fed, which stunned investors with a surprise 50 basis point rate cut last week, is likely to ease policy further in the future.

The Fed is also injecting cash into the banking system in a sign of underlying financing stress in the world’s largest economy.

On the whole, despite Tuesday’s respite for the dollar, expectations for Fed easing are likely to bring the greenback and U.S. yields back down.

The currencies of oil-producing countries also managed to rise slightly after a mauling on Monday.

The Russian rouble rose 2.7% against the dollar. The Mexican peso tacked on 0.8%, while the Norwegian krone edged 0.4% higher. The Canadian dollar gained 0.5%, pulling back slightly from its lowest since 2017.

The Australian dollar eased 0.6%, and the New Zealand dollar shed 0.7%, reflecting the greenback’s broad bounce./Investing.com

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