The dollar rallied on Tuesday after huge losses against the safe-haven Japanese yen and Swiss franc, amid investor hopes that global monetary policymakers will make further stimulus efforts to mitigate the economic impact of the coronavirus outbreak.
The greenback's recovery coincided with a rebound in the U.S. stock market and bounce in Treasury yields across the board, following U.S. President Donald Trump's announcement that he would hold a news conference on Tuesday about economic measures in response to the virus. Indications of further stimulus efforts by some governments helped reverse some of Monday's gyrations, but at 104 yen per dollar the Japanese currency was not back above the 105 seen before this week.
"This crisis caused by the coronavirus is pushing central banks and governments to spend money and that's a good thing for the market," said Juan Perez, senior currency trader at Tempus Inc. in Washington. "That's what the world wanted, not so much a cut in interest rates or quantitative easing. That why I feel the dollar will come back and recover," he added.
Analysts said though it was too early to predict a floor for the dollar, which plunged on Monday after an energy price war between Saudi Arabia and Russia triggered the biggest daily rout in oil prices since the 1991 Gulf War and Treasury yields dropped further.
Against a basket of currencies, the dollar rose 1.5% to 96.36. It rose 2% against the yen to 104.46, considerably higher than Monday's 101.18 low.
The yen also fell against the euro and the Australian dollar, after Bank of Japan officials indicated they were ready to ramp up stimulus if necessary, before a policy meeting next week.
The euro dropped 0.8% versus the dollar to $1.1354, down from $1.1495 on Monday, its strongest since early January. The dollar rose 0.9% against the Swiss franc to 0.9332 franc on Tuesday, recovering after three days of heavy selling pushed it to its lowest in almost five years.
Data suggest the Swiss National Bank is now intervening to weaken its currency. Sterling, meanwhile, fell 0.7% versus the U.S. currency to $1.3020.
Volatility has doubled in FX markets from the levels of late February, reaching its highest since early 2017, according to one index.
Analysts said FX volatility, which has not jumped to the same extent as in equity markets, could rise further. Commodity-linked currencies that tumbled on Monday following the crash in oil prices recovered slightly.
The Norwegian crown added 1.3% versus the euro to 10.80, away from record lows but still off the 10.4 levels seen last week. The Canadian dollar slipped 0.2% against the greenback, which edged up 2% to C$1.3694.