FOREX-Dollar falls, euro has best day since May 2018

(New throughout)
By Kate Duguid
NEW YORK, Feb 27 (Reuters) - The dollar fell on Thursday as
investors bet the Federal Reserve would cut interest rates to
offset the impact of the spreading coronavirus, giving the euro
its largest daily gain since May 2018.
Trader expectations of an interest rate cut in March
increased to 54.3% versus 33.2% on Wednesday, according to CME
Group's FedWatch tool. Expectations for a European Central Bank
rate cut have also risen.
"We're seeing a major reversal of the dollar's fortunes,"
said John Doyle, vice president of dealing and trading at
Tempus, Inc.
With U.S. rates much higher than those of G10 peers, and
therefore the scope for them to fall much wider, investors are
reversing out of the dollar.
"Rate cut expectations have gained momentum and U.S. rate
expectations are falling a lot more than they are in the euro
zone," said Thu Lan Nguyen, an analyst at Commerzbank.
Whether or not the dollar retreats further depends on
economic data on the coronavirus's impact on confidence and
trade outside of China, Nguyen said.
Against the euro EUR= , the dollar fell to a three-week
low, hovering just below that at 1.099, down 1.02% on Thursday
afternoon. The dollar index =USD dropped 0.658% to 98.463,
having earlier fallen to its weakest since Feb. 6.
It has shed roughly 1% since last week, when it touched a
near three-year high thanks to its safe-haven currency
credentials and investors' belief that the U.S. economy was
relatively sheltered from the coronavirus fallout. But the
currency's safe-haven appeal has worn off.
One-month volatility in euro/dollar, which was near record
lows, has shot up to its highest since early October EUR1MO= .
New coronavirus infections are now growing faster outside
China than within, stoking fears that the economic impact on
supply chains and consumer demand might be far greater than
previously anticipated. Investors have rushed for the safety of U.S. government
debt. Ten-year U.S. Treasury yields US10YT=RR slumped for the
third consecutive day to a record low of 1.241%.
The dollar dropped 0.52% to 109.84 JPY= Japanese yen as
the yen's safe-haven appeal began to return.
China's offshore yuan strengthened to a one-week high, with
the dollar down 0.18% at 7.008 yuan per dollar CNH= . The
Australian dollar, seen as a proxy for investor sentiment
towards China, rebounded 0.6% to $0.658 AUD= , away from
11-year lows touched on Wednesday.