By Anna Isaac, Caitlin Ostroff and James Glynn
Foreign-exchange markets convulsed, as steep drops in oil and stock prices sparked a flight from commodity-linked currencies into the perceived safety of the yen and Swiss franc.
The Russian ruble was among the biggest losers, plunging 8% against the dollar in its worst one-day performance since the height of the U.S. sanctions-led crisis in December 2014. Saudi Arabia's decision over the weekend to instigate an oil-price war as it escalated its clash with Russia sent crude prices down by the most since the Gulf War in January 1991, and threatened to sharply erode revenue for oil exporters, including Russia.
The Mexican peso logged its biggest drop since October 2018, while the Norwegian krone also fell sharply. Both currencies are also sensitive to the oil market.
Monday's sharp moves in the currency market suggest that the current period of market turmoil is different from past stock-market corrections, said Viraj Patel, a foreign-exchange and global rates strategist at London-based research firm Arkera.
"It's kind of like the last indicator that something ominous is going on, " Mr. Patel said. "We had a big global demand shock from the coronavirus, and this is just coming as a second leg."
Meanwhile, the WSJ Dollar Index, which tracks the dollar against a basket of major currencies, dropped 0.6% Monday in its biggest decline since June. The dollar has come under pressure in recent days as investors assess the outlook for global interest rates amid rising bets that the Federal Reserve may pare borrowing costs again, reducing what investors will earn for holding dollar assets.
The yen and Swiss franc, on the other hand, posted gains as investors looked for safe-haven assets amid the sweeping market turmoil of recent weeks. The rate cut by the Fed last week, as well as its decision on Monday to keep short-term funding markets operating by injecting funds, fueled speculation about the depth of policy makers' concerns regarding an economic slowdown, investors said, adding to the volatility in currency markets.
"We've seen waves of headlines creating an atmosphere of panic in markets," said Jane Foley, head of foreign exchange strategy at Rabobank. The Federal Reserve Bank of New York's offer of $150 billion in overnight lending is "a huge step up in intervention in money markets, " she said.
The Australian dollar, which briefly fell during Asian trading hours by as much as 4.9% against the U.S. currency, closed the day 0.8% lower.
Meanwhile, the yen jumped to trade just above 102 per U.S. dollar, its strongest point since 2016.
"What we've seen is dislocation and dysfunctional markets consistent with fear and uncertainty," said Su-Lin Ong, head of economics at RBC Capital Markets in Sydney.
The yen has also been buoyed by the Fed's moves to cut U.S. interest rates, reducing the gap between U.S. borrowing costs and those in Japan, which already has ultralow and, in some cases, negative interest rates.
Ryutaro Kono, a Tokyo-based economist at BNP Paribas, said the yen's strength was troubling for the Fed's counterparts at the Bank of Japan.
Since international political pressure made it hard for the finance ministry to intervene directly, "the BOJ signaling the possibility of rate cuts is the only way to stop the yen's appreciation" he said. But given negative rates tend to hurt banks and other financial firms, he added: "It would be the wisest choice for the BOJ to be patient and not take any action."
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