The euro plunged to its lowest level in three years on Thursday as demand for dollar funding stayed high despite the recent burst of liquidity injection operations undertaken by central banks around the world.
In volatile trading the euro fell 1.6% to $1.0726 per dollar, its lowest since April 2017, as traders rushed to dump euro positions despite a fresh round of stimulus from the European Central Bank.
The fall in the euro mirrored a sudden widening in FX implied borrowing costs for the US dollar, indicating that investors were rushing to secure their short-dated funding.
"There are still fears about refinancing of European debt in US dollars," said Ulrich Leuchtmann, head of FX and commodity research.
"The swap facilities should normally give access to euro funding. But I think this is not calming down the market. There's a general assumption that there are a lot of US funding needs, not just in Europe but also around the world as a whole."
Though the European Central Bank announced a 750 billion euro ($817 billion) asset-purchase programme in response to the coronavirus outbreak, currency traders were not impressed.
The euro's plunge boosted the dollar's value against a basket of its peers.
Sterling teetered near its lowest point since at least 1985 against the greenback, while the Australian dollar tumbled to a 17-year low and the New Zealand dollar was at its weakest in 11 years as investors dumped riskier assets.
"Central banks are stepping up their liquidity actions but it is not enough to make sure the dollar scarcity disappears, and as a result the dollar continues to be the favoured currency across the board," said Manuel Oliveri, a currency strategist at Credit Agricole in London.
The ECB's purchase scheme, announced after an emergency meeting late on Wednesday, came less than a week after policymakers launched fresh stimulus measures.
The dollar firmed to 102.30 against other currencies, its highest level since March 2017. It has gained more than 7.5% in the past nine trading sessions.
On an eight-day rolling basis, it is on its biggest rise since September 1992.
Though global central banks have pumped in billions of dollars in emergency liquidity injections in recent days and strengthened swap lines with some global central banks, dollar funding pressures remained exacerbated across the board.
Investors are selling what they can to keep their money in dollars due to the unprecedented amount of uncertainty caused by the coronavirus pandemic, which threatens to paralyse swathes of the global economy.
Kit Juckes, a strategist at Societe Generale in London, said that though there has been an improvement in the front end of the dollar liquidity curve, longer tenor funding in some corners of the market remained high.
In New Zealand for example, one-year FX swaps remained at their highest levels in nearly two decades, according to Refinitiv data.
The broad rush for cash dollars has forced investors to unload Treasuries and other government bonds as well as gold.
This has confounded many analysts because investors normally buy government debt and precious metals in times of uncertainty.
Elsewhere, the Swiss franc edged higher against the euro after the ECB's move, as investors had expected the ECB to keep rates on hold, though the franc remained within striking distance of a July 2015 high hit overnight at 1.0532 francs per euro.
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