Most Asian currencies firmed as hopes grew for a coordinated monetary policy response by major central banks to tackle the economic impact from the rapid spread of coronavirus, sending investors in the direction of emerging assets.
Reminiscent of the 2008 global financial crisis, central banks, including the US Federal Reserve and the Bank of Japan chimed in with assurances that they would take action to support economies if necessary.
Federal Reserve Chair Jerome Powell said on Friday the central bank will “act as appropriate”, and investors are pricing in a 0.25 percentage point cut at its next scheduled meeting on March 17-18. The dollar was 0.2 percent weaker.
Earlier, money had poured into US Treasuries, sending the implied yield on US 10-Year Treasury futures below 1 percent for the first time though it has since recovered.
The euro was up 0.2 percent, while the yen last stood 0.2 percent weaker.
Offering the first glimpse into the impact of the virus outbreak in China, factory activity contracted at the fastest pace on record last month.
China’s yuan, however, gained 0.3 percent, with some market participants saying the contraction was unlikely to get worse as production and supply slowly get back to normal.
“Unlike a demand-driven shock during the global financial crisis, when the market was unsure about the trajectory of the recovery, it is almost certain that February will mark the bottom for this year,” OCBC said in a note, citing easing restrictions on supply-side factors.
With markets now looking to central banks for a response, Julian Wee, an investment strategist at Credit Suisse, said lower risk aversion was seeing long positions on the dollar reduce.
“Ultimately, it will have to be an ebbing of the threat from Covid-19 that will provide an enduring floor for EM FX and Asia FX in particular,” Wee said.
The South Korean won strengthened 1.3 percent to its highest level against the dollar in nearly two weeks. — Reuters
