Dollar Recovers at Least 2 Weeks Euro Volatility Rises

As the coronavirus spreads rapidly outside China, market sentiment remained cautious, with measures of implied volatility in the euro / dollar rising to four and a half month highs while currencies linked to commodities such as the Australian and New Zealand dollars were under new selling pressure.

“The risk aversion theme is still impacting foreign exchange markets, although markets are beginning to reproach some of their excessive expectations of loosening monetary policy,”

This was evident in the expected price changes for the euro, with one-month maturities rising to 5.7% after hitting the six-year low of 2.3% last week.

But changes in derivatives had little impact on the markets, with the single currency finding it difficult to go above the $ 1.09 level on Wednesday. It was traded at $ 1.08760.

Commodity-linked currencies were under selling pressure, with the Australian and New Zealand dollars losing 0.5% each against the dollar.
Fed vice chairman Richard Clarida said on Tuesday that the central bank is monitoring the impact of the epidemic on the US economy but that it is too early to assess whether it will require a change in monetary policy.

Although money markets have also raised expectations for further cuts by the Fed, with future interest rates 0 # FF: now pricing around 60 base points of cuts by the end of the year against just 40 points a month earlier, investors are somewhat more cautious
Against a basket of currencies, the dollar gained 0.1% at 99.04, recovering from the 98.876 two-week low reached in the previous session.