Euro, yen gain as dollar’s rate advantage evaporates

(London) REUTERS: The dollar fell further against the euro and yen yesterday as sliding U.S. Treasury yields eliminated more of its interest rate advantage over other currencies.
Mounting fears over the effects of the coronavirus have driven a drop in expectations for U.S. rates. Markets now bet the Federal Reserve will have to cut rates by 50 basis points for a second time this month.

The resulting collapse in Treasury yields has ended one of the most popular carry trades globally - borrowing at negative rates in the euro and yen to buy U.S. assets.
The euro has now reversed all its earlier losses for the year, rising from below US$ 1.08 a few weeks ago to above US$ 1.12.

ING analysts said they were targeting US$ 1.15 in the coming weeks as aggressive U.S. rate cuts contrasted with the limited room for action at the European Central Bank. Fed fund futures were pricing in about 90 basis points of further easing by the end of the year.

 “For now, expect US$ weakness vs G10 FX to continue, and the G10 FX segment outperforming EM FX, with carry trades under pressure,” they said in a research note.
The euro last stood at US$ 1.1234, after touching US$ 1.1249, its strongest since August.

The dollar index was down at 96.438, close to its weakest this year.

Against the yen, the dollar dropped 0.3 percent to 105.82 yen. The yen is benefiting both from dollar weakness and its reputation as a safe haven.

The dollar was not weaker across the board. It still holds safe-haven status compared with emerging-market currencies and those exposed to commodities.