US dollar rebounds as traders cling to stimulus hopes

London

THE US dollar rebounded on Tuesday after huge losses against the yen and the euro, as investors turned hopeful that policymakers would introduce coordinated stimulus to cushion the economic impact of Covid-19.

The moves helped to reverse some of Monday's gyrations, but at 104 yen per dollar, the Japanese currency was not back above the 105 that was seen before this week.

The dollar started to recover as US stock futures rose and bond yields gained, following US President Donald Trump's announcement that he would be holding a news conference on Tuesday about economic measures in response to the virus.

Analysts said it was too early to call a bottom in the dollar, which plunged on Monday after a price war between Saudi Arabia and Russia triggered the biggest daily rout in oil prices since the 1991 Gulf War and Treasury yields dropped further.

Against a basket of currencies, the dollar rose 0.5 per cent to 95.865. It rallied 2.2 per cent against the yen to 104.6, considerably higher than Monday's 101.18 low.

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The yen fell against the euro and the Australian dollar after Bank of Japan officials indicated they were ready to ramp up stimulus if needed, before a policy meeting next week.

"It seems pretty clear that owning the yen still works when bond yields are falling, volatility is spiking and risk appetite is disappearing. So today's a bad day for the yen as we reverse all those sentiments," said Kit Juckes, an FX strategist at Societe Generale. "However, that opens up the opportunity to get yen longs on before we exit the eye of the storm and feel its fury again."

The euro dropped 0.7 per cent versus the dollar to US$1.1332, down from US$1.1495 on Monday, its strongest since early January. The dollar rose 0.8 per cent to 0.9329 Swiss franc on Tuesday, recovering after three days of heavy selling pushed it to its lowest in almost five years.

Data suggests that the Swiss National Bank is now intervening to weaken its currency.

Against the pound, the US currency rose 0.5 per cent to US$1.3060.

Volatility has doubled in FX markets from the levels of late February, reaching its highest since early 2017, according to one index.

Analysts said FX volatility, which has not jumped to the same extent as in equity markets, could rise further.

Commodity-linked currencies that tumbled on Monday following the crash in oil prices recovered slightly. REUTERS