Dollar dips as coronavirus damage spurs interest rate cut bets

NEW YORK (Reuters) - The U.S. dollar slipped to a six-week low against a basket of currencies on Monday, as investors bet on the U.S. Federal Reserve easing policy in a bid to counter the negative impact from the spread of the new coronavirus.

FILE PHOTO: U.S. Dollar and Japan Yen notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The dollar index, which measures the greenback’s strength against a basket of six other major currencies, was 0.53% lower at 97.448. Earlier it slipped to a low of 97.176, its lowest since Jan. 16.

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 panic in global markets prompted U.S. Federal Reserve Chairman Jerome Powell to issue a statement on Friday saying the Fed would “act as appropriate” to support the economy.

Investors took his comments as a hint that the Fed will deliver a cut when it meets March 17-18, and as an encouragement to central banks around the world to follow suit. Futures <0#FF:> now imply a 50 basis point cut at the meeting.

“The negative for the dollar is that the Fed has more leeway than many rival central banks to shock and awe with policy, steps that could do material damage to the currency’s allure,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.

U.S. manufacturing activity slowed in February as the supply chain disruptions arising from the coronavirus outbreak dragged on output and new orders, surveys of purchasing managers showed on Monday.

The damage to global markets due to the spread of the coronavirus has raised hopes of a coordinated policy action from global monetary authorities.

But policymakers at the European Central Bank, including its president, Christine Lagarde, have shown reluctance to cut rates from the current minus 0.5%.

On Monday, the euro was up 1.13% against the dollar.

The yen, which tends to draw investors during times of geopolitical or financial stress as Japan is the worlds biggest creditor nation, was up 0.1% against the dollar despite Bank of Japan Governor Haruhiko Kuroda saying the BOJ would take necessary steps to stabilize financial markets.

Sterling fell broadly, hitting a new four-and-a-half month low against a strengthening euro as traders took a cautious view at the start of talks between Britain and the European Union on their relationship after Brexit.

Reporting by Saqib Iqbal Ahmed; Additional reporting by Sujata Rao in London; Editing by Steve Orlofsky and Andrea Ricci