By Han Tan, Market Analyst at FXTM
Most Asian currencies are gaining against the US Dollar after the Federal Reserve lowered US interest rates by 50 basis points. The Fed’s surprise move pushed Gold prices past $1640 before moderating, while 10-year US Treasury yields remain near record lows in sub-one percent territory.
The inter-meeting policy adjustment suggests to investors that the coronavirus outbreak poses significant risks to the US economy and has triggered the world’s most influential central bank into rolling out emergency supportive measures. Markets now believe more Fed rate cuts are in store over the course of 2020, with Fed funds futures pointing to US interest rates being lowered by another 75 basis points by year-end.
With the Dollar index (DXY) set to test the 97.0 support handle, the heightened prospects of more US policy easing over the coming months may prompt the DXY slide to continue. This will inevitably mean emerging-market currencies find some reprieve over the near-term. However, the risks stemming from the coronavirus outbreak remain a dampener on assets across the emerging-markets complex, as investors sift through the hard data over the coming months to assess Covid-19’s toll on the global economy.
US data key in limiting Dollar’s downside
The incoming US economic indicators are set to be coloured by the Fed’s latest move, with investors querying what Fed officials might have seen either in the data or heard from the business community to warrant the surprise rate cut.
Although market participants harbour doubts over the effectiveness of lowering US interest rates to offset the economic toll from the coronavirus outbreak, the US economy still appears well-placed to bounce back, compared to other major economies. An overt show of US economic resilience, beyond this week’s ISM manufacturing and non-farm payrolls (NFP), is needed to limit the Greenback’s downside.
Gold boosted by heightened prospects for more policy easing
The Fed has given Gold bulls a shot in the arm, as rising expectations for more coordinated policy easing by central banks offer fresh upside to Bullion prices.
Even if the human toll from the coronavirus outbreak were to stabilise over the immediate term, investors still have to wait to find out what the eventual global economic cost is over the coming months. Gold is expected to remain supported amid such drawn-out uncertainties.
OPEC+ supply cuts needed to shore up Oil prices
OPEC+ is expected to initiate more supply cuts this week, which is likely to build a stronger floor beneath Oil prices. With demand-side uncertainties having already dragged Brent futures about 19% lower since the start of the year, while noting that the global PMI reading is currently at its lowest since 2009, Oil’s upside appears significantly capped amid persistent concerns over the coronavirus outbreak.
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