USD/JPY: Slide continues as markets price in March Fed rate cut

• Yen continues to draw bids amid risk-off tone in the equities. 
• March Fed rate cut is now baked in and is likely adding to bearish pressures around USD/JPY.

The downside in USD/JPY is gathering pace with markets pricing Fed rate cut in March amid coronavirus-led risk aversion in the financial markets. 

The pair traded near 109.60 in early Asia and is now hovering near 109.35, representing a 0.18% drop on the day. USD/JPY has suffered losses in four out of the last five trading days and is currently down 288 pips from the high of 112.23 observed on Feb. 20. 

Risk-off

The Dow Jones Industrial Average fell by over 1,200 points on Thursday, confirming its worst four-day performance since the 2008 financial crisis. Meanwhile, Japan's Nikkei and South Korea's Kospi fell to the lowest level since September earlier today. 

The risk has come under pressure this week on fears the coronavirus, which began in China, is spreading fast in South Korea, Japan, Europe and in the US and will put a sizeable dent on global growth. 

As a result, the yen has been drawing bids and powering losses in USD/JPY right from the start of the week. 

The selling pressure has further strengthened over the last eight hours with the market boosting the probability of the US Federal Reserve cutting rates in March. Currently, investors think there is a 99% chance the Fed will lower its key policy rate by a quarter-percentage point at its March 17-18 meeting, according to CME Group data. The probability of the Fed delivering three rate cuts in 2020 has also increased to 77%. 

So, USD/JPY could continue to lose altitude, unless there is a major positive development on the coronavirus front, in which case the risk sentiment will likely stabilize, forcing investors to price out dovish Fed expectations. 

Technical levels