Dollar ends lower on speculation of interest rate cut later this month

Market Review - 02/03/2020  23:40GMT  

Dollar ends lower on speculation of interest rate cut later this month

The greenback pared initial gains made in Asia and Europe and ended lower against majority of its peers on Monday due to negative impact on world's economy from the spread of coronavirus which raised speculation that the Federal Reserve will cut its interest rate at its next meeting later this month. Sterling fell across the board due to continued concern over EU-UK trade negotiations.  
  
Versus the Japanese yen, although dollar opened lower and hit a 4-1/2 month bottom at 107.00 (Reuters) in New Zealand on continued concern over worldwide contagion of coronavirus, price erased its losses and rallied to session highs at 108.57 at European open due to rise in Asian stocks as well as strong rebound in U.S. Treasury yields. However, the pair then retreated to 107.41 on usd's broad-based weakness before recovering to 108.46 on rally in U.S. equities near New York closing.  
  
The single currency gained from 1.1005 in New Zealand to 1.1073 before retreating to 1.1037 at Asian open on profit-taking and then moved sideways. The pair then found renewed buying at 1.1039 ahead of European open and later rose to a 7-week high at 1.1185 in New York on usd's weakness on speculation that the Federal Reserve will cut interest rate at its next meeting before easing.  
  
Reuters reported French manufacturing activity contracted slightly in February, a survey showed on Monday, as the euro zone's second-biggest economy starts to take a hit from the global coronavirus outbreak.     Data compiler IHS Markit said its final purchasing managers' index fell to 49.8 points in February from 51.1 in January, marginally higher than a preliminary reading of 49.7.     The fall put the index below the 50-point mark dividing expansions in activity from contractions for the first time since last July.     
A downturn in Germany's manufacturing sector eased further in February but the prospect of disruptions to supply chains as a result of the coronavirus means the promising data could be misleading, IHS Markit said on Monday.    Releasing its final February Purchasing Managers' Index (PMI) for manufacturing, IHS Markit said the sector managed to creep closer to stabilisation "as declines in output and overall new orders eased, helped by signs of firmer domestic demand".    The PMI for manufacturing, which accounts for about a fifth of the economy, rose to 48.0 in February from 45.3 in January.  
  
Reuters reported the manufacturing downturn in the euro zone eased last month despite the coronavirus outbreak and its impact on supply chains, in an encouraging sign for the European Central Bank as it tries to stoke growth, a survey showed on Monday.    IHS Markit's Manufacturing Purchasing Managers' Index rose to 49.2 in February from January's 47.9, pipping a preliminary estimate of 49.1 and chalking up its highest reading in a year.   
  
The British pound went through a volatile session. Although the British pound opened lower and fell to 1.2757 (Reuters) in New Zealand, price found renewed buying and rallied to 1.2850 ahead of European open on usd's weakness. However, cable then erased its gains and dropped to 1.2753 in Europe on active selling in sterling due continued concern over EU-UK trade talks before rebounding to 1.2799 but only to fall again to an intra-day low of 1.2740 in New York. Later, the pair rose in tandem with euro to 1.2825 in New York morning before retreating again.  
  
Reuters reported the global impact of coronavirus is starting to weigh on a post-election recovery in Britain's manufacturing sector as factories reported a big jump in delays in their supply chains, a survey showed on Monday.    The IHS Markit/CIPS purchasing managers' index (PMI) rose to 51.7 from the no-change level of 50.0 in January.     That was its highest since April but slightly weaker than February's "flash" reading of 51.9.     
Rob Dobson, a director at IHS Markit, said Britain's manufacturers were still in recovery mode after Prime Minister Boris Johnson's national election win in December, which lifted some of the uncertainty hanging over the country's economy.   
  
In other news, Reuters reported the European Central Bank is prepared to support the economy if needed in the face of the coronavirus outbreak, although more action is not yet needed, ECB policymaker Francois Villeroy de Galhau said on Monday.       "If more was needed and we were convinced that it would be effective, then we can do more, but we are not there yet," Villeroy, who is also governor of the Bank of France, said on French radio BFM Business.    
  
On the data front, Reuters reported U.S. construction spending increased by the most in nearly two years in January, but the upbeat news is likely to be overshadowed by financial market fears that the fast-spreading coronavirus could tip the economy into recession.     The Commerce Department said on Monday that construction spending surged 1.8% to a record high of $1.369 trillion as investment in both private and public projects increased. Data for December was revised up to show construction outlays rising 0.2% instead of decreasing 0.2% as previously reported.     Economists polled by Reuters had forecast construction spending would increase 0.6% in January. Construction spending advanced 6.8% on a year-on-year basis in January.   
  
Data to be released on Tuesday :  
  
Australia building approvals, current account, RBA interest rate decision, Japan consumer confidence, Swiss GDP, France budget balance, Italy unemployment rate, UK Markit construction, EU HICP, production prices index, unemployment rate, New Zealand GDT price index, and U.S. redbook, ISM New York index.