FOREX-Dollar retreats as coronavirus fallout raises expectations of rate cut

* Dollar down to two-week low as Treasury yields slide
* Analysts say rate expectations in U.S. falling fastest
* Euro recovers back above $1.09, yen also gains
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Tommy Wilkes
LONDON, Feb 27 (Reuters) - The dollar fell on Thursday as
Treasury yields continued to plumb new lows and investors bet
the Federal Reserve would cut interest rates to offset the
impact of a spreading coronavirus, while the euro bounced half a
percent higher.
Money markets are now fully pricing in a 25 basis point cut
in the Fed's rate by April and three by March next year.
Expectations for a European Central Bank rate cut have also
risen: money markets are now pricing in a more than 80% chance
of a 10 basis point rate cut in July.
But analysts point out that with Fed rates much higher, and
therefore the range for them to fall much larger, investors are
dumping the dollar - reversing some of the U.S. currency's gains
in the past week.
"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.
However, Nguyen said whether or not the dollar, which last
week touched an almost 3-year high, would fall further depended
on economic data on the coronavirus's impact on confidence and
trade outside of China.
The dollar index =USD , measured against a basket of
currencies, was last down 0.4% at 98.783, its weakest since Feb.
12.
It has lost 1.2% since last week, when its safe haven
currency credentials and investors' belief that the U.S. economy
was relatively sheltered from the coronavirus fallout encouraged
buying of the greenback.
The euro added 0.5% to $1.0939 EUR=EBS . Last week it had
dropped below $1.07, although it still remains down 2.4% so far
in 2020.
"The dollar doesn't look so safe if we are dealing with the
spread of the virus in the United States," said Yukio Ishizuki,
foreign exchange strategist at Daiwa Securities in Tokyo.
"The are some concerns that the U.S. government is
underestimating the coronavirus."
New infections of the virus are now growing faster outside
of China than within, stoking fears that the economic impact of
travel curbs, supply chain disruptions, and falling demand might
be far greater than previously anticipated.
Investors have rushed for the safety of U.S. government
debt. Benchmark 10-year U.S. Treasury yields US10YT=RR slumped
to a record low of 1.2970% in Asia on Thursday.
The dollar dropped 0.5% to 109.93 JPY=EBS Japanese yen per
dollar.
Elsewhere the pound GBP=D3 rose 0.3% to $1.2942. Sterling
hovered near a two-week low versus the euro, at 84.52 pence per
euro EURGBP=D3 .
The new round of talks between Britain and the EU is
scheduled to start on Monday, but comments from both sides
suggest their views on the scope of a fee-trade agreement differ
greatly.
The Australian dollar, seen as a proxy for investor
sentiment towards China, rebounded 0.5% to $0.6571 AUD=D3 ,
away from 11-year lows touched this week.