The US dollar was down late Thursday as Treasury yields continued to drop to new lows and traders bet the central bank would reduce interest rates, lifting the euro currency to its highest in over three weeks.
Financial managers are now pricing in one 25 basis point slash in interest rates and three by March 2021. Anticipation for a European Central Bank interest rate reduction has also grown, as money markets currently peg over 80 percent chance of a 10-basis point cut in July.
By the end of 2020, the markets are expecting 3 more reductions in benchmark loan rates. Prospects of the US currency losing its high yield worked against it despite the greenback's status as a global reserve currency.
The USD market noticeable declines across the board caused by slumps in the equities market as well as bonds. The Wall Street benchmarks notched almost 4 percent losses each while the 10-year treasury bonds hit a new record low of 1.25 percent, currently retreating four basis points around 1.27 percent.
According to John Doyle, Tempus Inc vice president of trading, the markets are witnessing a major "reversal of the US currency's fortunes." With US rates much higher, and the prospects for them to drop much wider, investors are reversing out of the currency.
Commerzbank analyst Thu Nguyen noted that rate cut estimates have gained pace and US rate projections are dropping a lot more than they are in the euro zone.
S&P 500 futures are mixed heading into Friday's session as risk trend is seen to remain the major stimulus for currencies. New cases of the coronavirus in South Korea could stretch the selloff in regional markets, leading to losses in Japan's Nikkei 225 and Australia's ASX 200.
These developments may bode well for the yen and could lift the Euro versus the greenback if the latter continues to be hammered by falling output estimates. The pro-risk Aussie currency will also be closely monitored along with domestic and private sector credit information.
On the economic front, the US durable products deliveries posted mixed readings with the key figures falling less than anticipated to -0.21 percent while core figures also reported decent numbers but failing to ignore momentum in trade.
Meanwhile, China's offshore yuan rose to a one-week peak, with the USD shedding 0.2 percent at 7.007 yuan per dollar. The AUD, viewed as a proxy for investor sentiment towards China, rallied 0.68 percent to $0.66, away from 11-year lows reached late Wednesday.