FBS

US Federal Reserve cuts interest rates to battle coronavirus (COVID-19)

The U.S. dollar fell across the board after the U.S. Federal Reserve cut interest rates on Tuesday in an emergency move designed to shield the world’s largest economy from the impact of the coronavirus.

In a statement, the central bank said it was cutting rates by a half percentage point to a target range of 1.00% to 1.25%.

“The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate,” the Fed said a statement.

The dollar index, which measures the greenback’s strength against a basket of six other major currencies, was 0.14 % lower, after falling 0.555% to 96.991 earlier in the session. The index slipped to fresh 6-week low of 96.926 after the interest rate decision before paring losses.

“This is definitely not good for the dollar,” said Mark McCormick, global head of FX strategy at TD Securities.

While the U.S. has room to cut interest rates, other developed economies have already slashed rates to record lows and may be hesitant to reduce them further. That is likely to weigh on the U.S. currency and boost the currencies of other countries, he said.

The Fed’s move comes shortly after Group of Seven finance officials said on Tuesday they would use all appropriate policy tools to achieve strong, sustainable global growth and safeguard against downside risks posed by the fast-spreading coronavirus.

Global risk assets, including equities, were hammered hard last week as investors worried about the economic impact of the global spread of the virus.

The safe-haven Japanese yen and Swiss franc gained on the dollar on Tuesday, as investors remained nervous about the economic fallout of the coronavirus outbreak.

The yen, which tends to attract investors during times of geopolitical or financial stress as Japan is the world’s biggest creditor nation, was up about 1% against the dollar, while the Swiss franc, another safe haven, rose 0.7%.

The euro, lifted in recent sessions by hopes that the U.S. would be able to do more on rate cuts than the Europe, was up 0.57% against the dollar.

On Tuesday, the Australian dollar was 1.28% higher after the Reserve Bank of Australia (RBA) cut interest rates by 25 basis points, as anticipated. Markets had priced the possibility of a larger cut.

Sterling rose 0.54% against the dollar on Tuesday, even as Britain’s fractious trade talks with the EU and expectations of rate cuts to counter coronavirus damage kept the currency near recent 4-1/2-month lows.

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