Yen jumps as traders seek safety despite Fed's rates slash

London

JAPAN'S yen surged 2 per cent on Monday with traders seeking cover in safe-haven currencies as fears about Covid-19 trumped central bank efforts to ease the pain, while the dollar stood tall despite the US Federal Reserve slashing rates to zero. The Fed cut US interest rates on Sunday and said it would expand its balance sheet by at least US$700 billion in the coming weeks. The Bank of Japan said at an emergency meeting that it would buy more corporate bonds, commercial debt and establish a new corporate lending scheme. New Zealand's central bank has also slashed rates in an emergency move.

But equity markets slumped again on Monday as traders fretted about the growing number of Covid-19 cases worldwide.

In FX, investors dumped riskier currencies and bought into those they consider safer, although the size of the moves was not as large as last week. MUFG analysts said policymakers could reduce volatility, but "the ultimate determinant will of course be evidence that Covid-19 is peaking". The dollar dropped 2 per cent to as low as 105.70 yen. That was still above last Monday's 101.18 yen.

The Swiss franc, another currency considered a safe haven, rose versus the dollar, with the dollar down 0.6 per cent at 0.945 francs. The franc was unchanged versus the euro at 1.055 francs but near four-and-a-half-year highs.

The dollar, measured against a basket of currencies, was last up 0.1 per cent at 97.95, off the day's highs. It had been falling as traders sold because of collapsing Treasury yields, but the US currency has rebounded the past week as panicked investors stocked up on the world's most liquid currency.

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The euro jumped 0.5 per cent to US$1.1168 after earlier reaching US$1.124. Sterling sank as low as US$1.2250, its weakest since October.

Volatility, which had doubled in a few weeks, has subsided in both euro/dollar and across currencies, although it still remained elevated.

The People's Bank of China injected 100 billion yuan (S$20 billion) into financial institutions on Monday.

The move came minutes before data showed China's retail sales, industrial output, and fixed-asset investment all tumbled in January and February. "The measures introduced to stop the spread of the virus in China may have led to a sharper slowdown in activity than will be the case elsewhere, but it's clear that the measures central banks have taken, and whatever they do next, cannot prevent a major economic hit being felt globally," Societe Generale strategist Kit Juckes said. The offshore yuan rose 0.1 per cent at 7.0206 yuan per dollar.

The Reserve Bank of New Zealand cut rates by 75 basis points to a record 0.25 per cent. The Reserve Bank of Australia added A$5.9 billion (S$5.1 billion) to the banking system.

The New Zealand and Australian dollars fell 0.3 per cent but were off the day's lows. REUTERS