The U.S. dollar gains after eight-week low while Euro falls

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The U.S. dollar gains after eight-week low while Euro falls

The U.S. dollar increased again after the turbulent last weeks. Before it rose against a basket of currencies on Wednesday, the dollar fell to an eight-week low after the U.S. Federal Reserve cut an emergency interest rate in the previous session.

However, the dollar index increased by 0.24% at 97.365. It lowered to its weakest point since January on Tuesday, reaching 96.926 before gaining again.

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. Good data also helped the greenback to rise.

According to the latest report, U.S. private payrolls rose more than expected in February. Such results pointed to labor market strength before a recent escalation of recession fears. Even so, the U.S. services sector activity accelerated to a one-year high in February. That suggests underlying strength in the economy despite the coronavirus outbreak.

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.

It seems, the traders 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.

What about the European currencies? 

After the last weeks’ rally, the Euro plummeted down on Wednesday, lowering by 0.31% at $1.1136. Stephen Innes, the chief market strategist at AxiCorp, noted that the ECB’s imminent cut caused the currency’s downfall.

So far, 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.

Meanwhile, the Canadian dollar also weakened against the greenback on Wednesday due to the Bank of Canada slashing its benchmark interest rate to 1.25% from 1.75%. The pound, however, was flat against the greenback at $1.2817.

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