Outbreaks quickly spread to Europe and the Middle East. Thus, investors no longer see the United States economy immune. They started to bet that the United States Federal Reserve would have to cut rates of interest to support the United States economy.
Compared to about 50% chance a week ago, by the end of June, the United States market futures are now adequately priced at a 0.25 percentage point cut. The Federal Reserve officials have shied away from indicating a policy move.
Richard Clarida is a Fed Vice-Chair. On Tuesday, he said that Federal Reserve is closely monitoring the escalating coronavirus outbreak. Nevertheless, it is still too soon for gauging if it will require a change in monetary policy.
Reducing the dollar’s relative yield attraction, still, the 10-year United States Treasuries yield plunged to a record low near 1.30%.
Federal Reserve
The world’s other major central banks, including the Bank of Japan and the European Central Bank, have limited room to ease with their policy rates already at record lows, in contrast to Federal Reserve.
Tatsuya China is the manager of the forex at Mitsubishi Trust Bank. Chiba that that markets had been under-estimating the risk of coronavirus. Nevertheless, he thinks that that phase is over by now.
Tatsuya Chiba is sad that the risk-off mood will most likely continue for another month. After that, the market will reach the extreme in the opposite direction by over-estimating the risk.
He says that he thinks they will see the peak of fears when people become seriously worried about an epidemic in the United States.
Stuck near Monday’s 11-year low of $0.6585, the risk-sensitive Australian dollar stood at $0.6603.
The dollar index stood against a basket of six major currencies at 99.081. On the day there was a little change, but it was down 0.9% from a near three year high of 99.915 hits last week.
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