The euro fell to its weakest level against the US dollar in more than two and a half years, reflecting recent strength in the greenback and the market’s concerns over economic fallout from the coronavirus outbreak.

The Europe-wide currency dropped as much as 0.4 per cent to $1.0877 on Wednesday to hit its lowest mark since May 2017. Worries over the spread of coronavirus have boosted the dollar, a haven for investors amid uncertainty over the global outlook.

The dollar index, which measures the greenback against a group of other currencies, was up 0.2 per cent — bringing its gains over the past month to 1.6 per cent. “The defining characteristic of the [dollar] in recent weeks has been its role as a safe haven,” Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered, said.

He added that in a scenario where the coronavirus abates within a few months, “the US activity impact is likely to be more modest than the impact on Asia, especially if the disease impact is visibly receding within a month or so.” The euro’s slide also came after European Central Bank president Christine Lagarde defended stimulus measures aimed at boosting the region’s economy.

Investors are waiting to see if policymakers choose to cut rates further this year in response to economic pressure from coronavirus. “The main impact of coronavirus for Europe is growth,” Mr Englander said. “The euro area started the year with low growth and an ECB largely out of policy options. The hope was that . . . fiscal expansion would begin.

However, the negative growth shock has reduced this hope.” The euro has shed 2.3 per cent of its value in the last month. Sterling has edged 0.2 per cent lower during the same period but was up 0.1 per cent on Wednesday.

source: ft.com