The U.S. dollar appears to have lost its safe-haven luster overnight, falling against most of its peers even as global equity markets are again awash in red.
Most analysts are pointing to a new worry about the coronavirus spreading in the United States on news of the first case where a person with the virus did not have ties to an existing outbreak.
The dollar is also under pressure as the odds of more monetary stimulus shoot higher. Surprisingly, there is now a 50% chance the Fed will cut rates at its next meeting on March 18th. That is up from just a 5.0% chance one week ago. Odds of at least one cut by April are now at 90%.
This morning’s revision to 4th quarter GDP will be viewed with a more critical lens. The headline reading of 2.1% annualized growth met expectations, but it is important to note that consumer spending was revised downward. This is important because it means the U.S. economy was on a slightly weaker footing ahead of a possible coronavirus-driven slowdown.
What to Watch Today…
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The Euro was the biggest mover against the U.S. dollar overnight, gaining nearly 1.0% and pushing further off its 3-year lows experienced earlier in the month. The Euro’s move was not a result of strong European data but rather widespread dollar weakness as odds for Fed rate cut grow.
Moving into the rest of the year, EUR/USD appears to have solidified a floor at the three-year low, almost 2.0% lower than current levels.
The British pound was unable to take advantage of widespread dollar weakness, declining slightly versus the U.S. dollar and dropping sharply versus the Euro. The sterling is stuck in lower ranges as the U.K. said it would prepare for a no-trade-deal exit by June if they were unable to make quick progress with the European Union. While the declaration is likely a negotiating tactic, sterling traders were in no mood to risk it.