The dollar stood tall on Friday as investors scrambled for the world's most liquid currency amid deepening panic about the coronavirus, while the euro nursed losses after the European Central Bank disappointed by not cutting rates.
The greenback held gains against most currencies after a blowout in swap spreads showed investors are facing a shortage of dollars as equity markets plunged on fears about the global economic impact of the flu-like virus. The ECB on Thursday unveiled a stimulus package that provides loans to banks with rates as low as -0.75% and increases bond purchases.
The Federal Reserve moved to provide $1.5 trillion in short-term liquidity and changed the durations of Treasuries it buys, but money markets show investors expect the Fed will have to go even further to restore calm to financial markets. The government in Italy, which has become Europe's hot spot for coronavirus infections, has effectively put the entire country on lockdown to try to slow the virus. Investors have so far expressed disappointment with the government response to rising infections in the United States, and traders warn there could be more disruptions in a broad range of financial markets.
"Risk off used to benefit the yen, but now we see that risk off is supporting the dollar," said Takuya Kanda, general manager of the research department at Gaitame.com Research Institute in Tokyo.
"We are in panic mode, because we don't know how far stocks will fall." The euro traded at $1.1202, following a 0.72% decline on Thursday in the wake of the ECB decision. For the week, the common currency was on course for a 0.7% decline.
Against the pound, the dollar rose slightly to $1.2541 in Asia on Friday, which followed its biggest one-day gain against sterling since July 2016. The dollar was up 3.8% against sterling this week, its best performance since October 2016. The greenback held gains against the Swiss franc, trading at 0.9435, headed for a 0.7% weekly gain.
The ECB rolled out yet another stimulus package on Thursday to help fight the coronavirus pandemic but did not join its counterparts in the United States and Britain by cutting rates. Cross-currency basis swap spreads for the yen and the pound blew out in what traders say is a sign of a dollar shortage.
Highlighting the sense of crisis, senior officials from the Group of Seven talked on Thursday and confirmed they will cooperate closely as equities tumble and corporate bond spreads widen. The dollar rose 0.88% to 105.58 yen on Friday, on course for a 0.2% weekly advance. The Canadian dollar rose slightly to C$1.3894 against the greenback, pulling back from a four-year low.
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