The dollar lost steam on Friday after an ascent that left it set for its biggest weekly gain since the 2008 global financial crisis, as the coronavirus pandemic caused a stampede for cash that has trampled asset markets.
The dollar is up about 3.5% on a basket of currencies through a week when investors have liquidated everything from stocks to bonds, gold and commodities. The Australian dollar led Friday's partial recovery among beaten-down majors with a 3% gain to $0.5897. Sterling rose 1.5% from a 35-year low to $1.1654.
The yen rose 0.7% to 109.97 per dollar. The South Korean won rallied more than 3% from an 11-year low, amid broader gains in regional stock markets. But with signs of stress in the financial system still elevated - even as central banks across the globe pump cheap dollars to banks - few expect a reversal of the dollar's rise.
"People are selling everything and the common thread is they just want cash," said Stuart Oakley a Singapore-based executive with Nomura, who runs the bank's trading with its clients. "People just want cash because at the end of the day, people don't know where their next revenue is coming from and they've got payments to meet. I don't think that's going to change."
Virus news has also been grim. An Iranian official in Tehran tweeted that the coronavirus was killing one person every 10 minutes. In Italy, soldiers were called in to shift the dead from a cemetery overwhelmed by the numbers. California on Thursday issued a stay-at-home order for its 40 million residents, as cases in the United States surge past 13,000.
"The US dollar is doing what it should be doing in times like these: appreciating," said Bank of America FX analyst Ben Randol. "We think that the US dollar will continue to appreciate in unstable financial markets on most pairs potentially except yen and Swiss franc," said Randol, excluding two currencies long regarded as safe-havens. Already the dollar's gains over the past few weeks have been staggering, and the surge is a nightmare for many countries and companies that have borrowed heavily in greenbacks.
The Australian dollar has lost 11% over two weeks, its worst two-week drop since 2008. Norway's central bank is considering FX intervention after a 20% fall in the oil-sensitive krone over the same period. The stress on economies has fuelled speculation in markets that major nations could push for a new Plaza Accord, the 1985 agreement that led to major central banks intervention to weaken a rampant dollar.
So far the US Federal Reserve has extended a discount dollar funding facility to nine more central banks, so that dollars can wash across the globe. Cross-currency basis swaps, which show the cost of borrowing dollars abroad, show that has barely eased the strain in markets so far.
The premium over interbank rates that investors were paying to swap yen for one-year dollar funding was around 68 basis points, still close to the 2016 highs hit last week. Euro cross-currency basis swap spreads also remain wide and so is the FRA-OIS spread, a barometer of risk in the interbank market. "World markets are still very, very nervous," said Westpac FX analyst Imre Speizer. "People are scrambling for (cash) any way they can."
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