Dollar Drops as Fed Slashes U.S. Interest Rates: Markets Wrap

The dollar weakened after the Federal Reserve slashed U.S. interest rates to zero, in a shock move aimed to cushion the world’s largest economy from the impact of the coronavirus.

The Federal Reserve on Sunday cut its benchmark rate by a full percentage point to near zero and will boost its bond holdings by $700 billion. The central bank also announced several other actions, including letting banks borrow from the discount window for as long as 90 days and reducing reserve requirement ratios to zero percent.

The New Zealand dollar was lower following that country’s emergency interest-rate cut earlier. Europe is now reporting more daily cases than China did at the peak of the coronavirus outbreak there, with global cases topping 160,000. Traders expect more market volatility this week amid doubts that Friday’s rally in U.S. equities can be sustained.

The moves from policy makers follow the recent tumble in equity markets and a tightening in financial conditions, with businesses feeling the strain of reduced global activity. Over the weekend, the U.S. extended its travel ban to more countries and cases continued to surge in Europe, while airlines continue to take drastic measures to weather the collapse in travel.

“Markets are trying to grapple with immense uncertainty around the depth and duration of the coronavirus’s impact on global growth,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. “We really need to see evidence that the virus and its economic impact will come under control such that shares and other investment markets can be confident that the worst has been factored in before markets will bottom. Right now, this is still lacking.”

Here are the main moves in markets:

Currencies

  • The yen rose 0.8% to 106.78 per dollar as of 6:20 a.m. in Tokyo.
  • The offshore yuan rose 0.2% to 7.0071 per dollar.
  • The kiwi sank 0.4% to 60.97 U.S. cents.
  • The Aussie rose 0.7% to 62.44 U.S. cents.

Stocks

  • The S&P 500 advanced 9.3% on Friday.
  • Futures on Japan’s Nikkei 225 gained 6.7% on Friday.
  • Futures on Australia’s S&P/ASX 200 Index rose 1.1% on Friday.

Bonds

  • The 10-year Treasury yield rose 15 basis points to 0.96% on Friday.

Commodities

  • West Texas Intermediate crude added 0.7% to $31.73 a barrel on Friday.
  • Gold was at $1,529.84 an ounce.

— With assistance by Zoe Schneeweiss

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