FOREX-Yen, euro gain on dollar as Fed rate cut talks heat up

* Yen rides high after biggest weekly gains since 2016
* Euro also up as euro carry trade pared back
* Investors bet on Fed rate cut at March 17-18 or even
earlier
* Pound, Aussie, emerging markets currencies suffer
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, March 2 (Reuters) - The yen and the euro rose against
the dollar on Monday on growing expectations that the U.S.
Federal Reserve will cut interest rates at its policy review
this month to protect the economy from the rapid spread of the
coronavirus.
As U.S. shares were routed in recent days, Federal Reserve
Chair Jerome Powell said on Friday the central bank will "act as
appropriate" to support the economy in the face of risks posed
by the coronavirus epidemic. Investors took his comments as a hint that the Fed will cut
interest rates by at least 0.25 percentage point at its next
scheduled meeting on March 17-18.
There is even increasing chatter of an unscheduled move,
with a U.S. bank lobby economist saying a coordinated global
interest rate cut by the top central banks could happen as early
as on Wednesday.
The expectations around the Fed underscored the speed and
scale of the virus' spread from China through to dozens of
countries and the potentially crippling blow to the global
economy.
Investors expect the dollar's yield advantage - a key
support for the U.S. currency - to shrink as the European
Central Bank and the Bank of Japan are seen having limited room
for further cuts given their rates are already in negative
territory.
The yen rose to as high as 107.00 to the dollar in early
Monday trade and last stood at 107.75 yen JPY= , up 0.3% from
its levels in New York late on Friday.
The Japanese currency had risen 3.2% last week, the biggest
gain since July 2016. Japan's current account surplus and the
yen's vast liquidity make the yen behave like safe haven asset.
The euro stood at $1.1042 EUR= , up 0.14% so far in Asia,
trading near its highest level in almost a month after a 1.7%
gain last week, the largest in two years.
The common currency's rise stemmed from unwinding of
so-called euro carry trade, in which speculators borrow the euro
to invest in higher-yielding currencies, market players said.
The safe haven Swiss franc CHF= also hit 1-1/2-year high
of 0.9610 franc per U.S. dollar on Friday and last stood at
0.9642.
Underscoring investors' concerns, China's official
Purchasing Managers' Index (PMI) fell to a record low of 35.7 in
February from 50.0 in January, the National Bureau of Statistics
said on Saturday, showing factory activity contracted at the
fastest pace ever. "The data showed the severity of the damage from the
coronavirus. If upcoming data undershoots market expectations,
that will weigh on sentiment further," said Kyosuke Suzuki,
director of currency trading at Societe Generale.
The offshore yuan slipped only slightly to 6.9840 yuan per
dollar CNH= , down about 0.17% in early Asian trade, off
Friday's high of 6.9777, its highest since Feb. 17.
But the Australian dollar, often used as a liquid proxy on
China, lost 0.34% to $0.6485 AUD=D4 , down 0.34% having hit a
11-year low of $0.64345 on Friday.
The New Zealand dollar was also on the defensive after
sliding to a decade low of $0.6180 last week. It last traded at
$0.6218 NZD=D4 , down 0.46% NZD=D4 .
Selling spread to some emerging market currencies.
The Mexican peso MXN= and the South African rand ZAR=
both lost more than 1% in early Monday trade.
The Turkish lira TRYTOM=D4 , which has been weighed by the
country's intensifying involvement in fighting in Syria, slipped
a tad to record lows.
Among developed market currencies, the pound is seen more
vulnerable than its peers at time of major economic crisis as
UK's sizable current account deficit meant the country depends
on foreign capital.
Investors are also fretting about Britain's negotiations
with the European Union over a trade deal and whether a UK
budget next month will include much more spending, which many
investors say is necessary to boost economic growth.
Sterling traded at $1.2799 GBP=D4 , down 0.15% so far on
the day, not far from its 4-1/2-month low of $1.2726 hit on
Friday.
The pound stood near its lowest levels since October against
the euro and the yen.