Markets calm; central bank moves in focus

WASHINGTON: A degree of calm has returned to the foreign exchange market, with the robust actions of the Chinese central bank tending to reassure investors that the coronavirus outbreak will not have as severe an impact on the markets as previously feared.

At 03:00 ET (0800 GMT), USD/CNY traded at 7.0011, up just 0.1%, while the U.S. Dollar Index that tracks the greenback against a basket of six other currencies was largely unchanged at 97.815. The death toll from the coronavirus outbreak increased to 490, while confirmed cases rose to 24,324, Chinese authorities reported today. But despite these figures continuing to rise, the WHO expressed confidence that the virus spread could be contained, as it pointed out 99% of the cases are in China so far. The People's Bank of China has already pumped hundreds of billions of dollars into the financial system this week to ensure adequate liquidity and restore confidence.

And the expectation is that the PBOC will do more, probably lowering its key lending rate - the prime rate - on Feb. 20, when it next meets, and cutting banks' reserve requirement ratios further in the coming weeks.

Staying in Asia, the Bank of Thailand earlier Wednesday cut its benchmark interest rate by 25 basis points to 1%, a record low, and the third cut in the last five meetings.

The virus outbreak has delivered a severe blow to Thailand's tourism industry, undermining the outlook for the economy, which had already been hit by the worst drought in four decades. The Thai baht has been very weak against the dollar of late, and the rate reduction added to its woes. At 03:00 AM ET (0800 GMT), USD/THB traded up 0.6% at 31.135, just off last week's seven-month high.

Elsewhere, the Polish central bank will meet later Wednesday and is expected to maintain its key rate at 1.5%.

Concerns about an economic slowdown, exacerbated by the outbreak of the coronavirus in China, are set to outweigh worries about inflation pushing upwards toward the 3.5% upper end of the central bank's tolerance range.