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Yen and franc gain as investors still see uncertainty
THE safe-haven Japanese yen and Swiss franc gained on the dollar on Tuesday, as investors tempered hopes for the impact of global monetary easing with concern about how much it can do to combat the economic damage from the Covid-19 outbreak.
Global stocks and oil rallied on Tuesday, and safe havens - gold, the yen and the franc - were standouts as risk appetite grew in anticipation of stimulus from central banks.
Group of Seven (G7) finance ministers and central bank governors will hold a conference call later on Tuesday to discuss how to deal with the outbreak and its economic fallout.
The call, which French and Italian sources said begins at 8pm, comes with markets already betting the US Federal Reserve will lead a round of global monetary easing.
The dollar fell as much 0.5 per cent to 107.67 yen and to 0.9573 francs after Reuters reported, citing an unnamed G7 official, that the group's draft statement had no fresh fiscal or monetary pledges.
"For many investors, there is the view perhaps, that central banks can do a lot to help the symptoms of this crisis, but they're not going to entirely make it go away," said Jane Foley, currency strategist at Rabobank in London. "There is going to be uncertainty about the economic impact of this virus, and given that, there will be safe haven demand."
In a statement, expected on Tuesday or Wednesday, the G7 countries will pledge to work together to mitigate damage to their economies, without giving specifics, a source with knowledge of the draft told Reuters on condition of anonymity.
That leaves investors again confronting fundamentals - the virus and the economic slowdown it is causing will hurt, and the damage looks as if it will not be confined to China-exposed assets.
The extra room to respond in the United States, where the Federal Reserve's benchmark rate is 1.5 per cent to 1.75 per cent, compared with zero in Europe, has weighed on the dollar.
However, after the European Central Bank said it was ready to take "targeted" steps to fight the virus' effects, the euro fell from a five-week high on Tuesday.
The dollar index was 0.1 per cent higher at 97.641 and the euro was 0.2 per cent lower at US$1.111. The Australian dollar gained after the Reserve Bank of Australia (RBA) cut interest rates by only 25 basis points, as anticipated. Markets had priced in the possibility of a larger cut. REUTERS