* Euro/dollar stays above $1.08
* Japanese yen get back safe-haven properties, rises
slightly
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Olga Cotaga
LONDON, Feb 25 (Reuters) - The U.S. dollar stayed soft on
Tuesday amid expectations that the Federal Reserve may cut
interest rates this year to curb downside pressure on the
economy caused by China's coronavirus outbreak.
The dollar initially rose as the virus spread further around
the world, with investors eyeing all U.S. assets as safe-haven
investments. However, money managers now think the Fed would be
more likely to easy monetary policy and cut rates given that it
benefits from the biggest room to do it.
Against a basket of currencies the dollar was 0.2% weaker at
99.19 =USD , drifting away from the three-year high reached
last week. However, without much good news on the virus, few
expect the dollar to give back too much of its recent gains.
The euro was last up 0.1% at $1.0863 EUR=EBS , drifting
away from the three-year low it fell to last week, sending it
below $1.07 as money flooded into the safe-haven dollar.
Market gauges of implied volatility in euro/dollar eased off
a bit on Tuesday after rising to their highest since October on
Monday. EUR1MO=FN
Japan's Prime Minister Shinzo Abe said on Tuesday that
clusters of coronavirus cases had emerged in the country and
that the government would take stronger steps to fight
contagion, giving Asian investors another reason to stay cool on
the yen, which has been tripped off its safe-haven status
recently. The yen last traded up 0.2% at 110.53 per dollar JPY=EBS .
China, meanwhile, reported a rise in new coronavirus cases
in Hubei province, the epicentre of the outbreak, even though
the rest of the country saw a fourth-straight day of declines.
South Korea, which has the most virus cases in Asia outside
China, reported 60 new cases on Tuesday, increasing the total
number of infected patients there to 893 - leaving few to expect
the region's currencies to do more than hold steady for now.
China's yuan was last up 0.2% at 7.0225 per U.S. dollar in
the offshore market, a five-day high. CNH=EBS
Lee Hardman, currency analyst at MUFG, said he expected
"some downside risk for the U.S. dollar" going further given the
Fed's potential dovish shift in policy.
Market participants continue to build up expectations for
further Fed easing, with money markets pricing in a 25 basis
points cut for the meeting in June. FEDWATCH=
For the year as a whole, traders expect the central bank to
lower rates to between 1% and 1.25%, down from the current 1.5%
to 1.75% range.
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Implied volatility on the rise https://tmsnrt.rs/2TaLpU0
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