The U.S. dollar fell by 1.5 percent against the Japanese yen during early trade in Asia on Monday as the markets reacted to the Federal 
Reserve’s emergency interest rate cut which was announced on Sunday. The dollar also eased against its other primary trading partners including the pound and the euro. U.S. President Donald Trump said that he was “very happy” with the move, though traders did not seem to share the enthusiasm; U.S. stock futures plummeted after the announcement, indicating that the move did not calm investors’ nerves and that future selloffs are likely to continue, with some traders expecting this week to see the worst losses since 1987.
In an emergency meeting, the Federal Reserve announced that it would be slashing interest rates to 0 to 0.25 percent and that it would increase its balance sheet by at least $700 billion in the near term. Analysts have already begun to comment that the interest rate cuts are not sufficient enough to counteract the economic ruin that will result from new social distancing rules that have been imposed around the globe. Restaurants, bars, theaters, gyms, and many non-essential stores have all announced closures. Nike has closed all of its stores in the U.S., as has Apple. Airlines have slashed routes as governments continue to extend travel restrictions. American Airlines announced over the weekend that it would be cutting 75 percent of its routes.
The dollar index was down 0.65 percent as of 2:56 p.m. HK/SIN, to 98.11. The dollar rebounded slightly from its early losses against the yen, trading down 1.344 percent to 106.46. The pound was up 0.49 percent against the greenback, to $1.234, while the euro gained 0.26 percent to $1.113.
Oil Remains Volatile
Oil prices continued their high volatility, with U.S. WTI futures easing 3.53 percent in the mid-afternoon in Asia, to trade at $30.61 per barrel. Brent crude futures were down 5.29 percent, to $32.06 per barrel. Oil prices continue to be weighed down by a price war between Saudi Arabia and Russia as well as continually declining demand as airlines continue to cut routes.
Russian oil ministers have commented that the country can manage with oil prices between $25-$30 per barrel for a period of six to ten years and that the country will work to remain competitive “at any forecast price level.” The country’s flexible exchange rate is responsible for helping it weather the storm. Saudi Arabia, on the other hand, has a fixed-rate currency that gives the country less flexibility. It will not likely be able to support lower oil prices for the long term.
Still, it is likely the emerging market economies that rely on oil that will face the biggest challenges from the oil price war. Iraq, Angola, Suriname, Oman, and the Gulf countries are at the biggest risk for economic decline if oil falls below $40 for an extended period of time. Nigeria is already starting to show signs of a shortage of dollars. Emerging market stocks have seen massive selloffs in recent weeks, with a decline of some $41.7 billion, and this situation is likely to get worse before it gets better, with emerging market economies suffering significantly in the near term.