The euro dropped by 0.31% at $1.1136 on Wednesday after its recent rally. According to Stephen Innes, the chief market strategist at AxiCorp, the ECB’s imminent cut caused the currency’s downfall. Forex markets in the eurozone are pricing a 90% chance that the European Central Bank will cut its deposit rate, now minus 0.50%, by ten basis points next week.
The U.S. Central Bank cut rates by 50 basis points to a target range of 1.00% to 1.25% on Tuesday, two weeks earlier before a regularly scheduled policy meeting. This move surprised the investors and caused the dollar to lower until now.
The pound was flat against the dollar at $1.2817. On the other hand, the Canadian dollar weakened against the greenback after the Bank of Canada cut its benchmark interest rate to 1.25% from 1.75%.
What about the U.S. dollar?
After the eight-week low, the dollar rose against a basket of currencies on Wednesday. The dollar index increased by 0.24% at 97.365. The currency’s recent downfall was the result of the U.S. Federal Reserve cutting an emergency interest rate in the previous session. It dropped to its weakest point since January on Tuesday, reaching 96.926 before gaining again.
New data boosted the greenback. U.S. private payrolls rose more than expected in February, according to the latest report. Such results pointed to labor market strength before a recent escalation of recession fears.
The U.S. services sector activity accelerated to a one-year high in February despite the coronavirus fears. That suggests underlying strength in the economy. Jonathan Coughtrey, managing director at Action Economics, noted that the dollar had found its feet after a phase of underperformance against the euro and some other major currencies.
It seems the bulls were waiting to see if the other major central banks would follow the Fed and make emergency cuts to their interest rates to avoid economic damage due to the coronavirus. However, so far, the banks are avoiding such a radical step. The forex market is relatively stable for now.