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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. 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 GBP=D3 , 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 CHF=EBS , 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.
Investors, who had bet the ECB could cut rates at least 10 basis points and possibly more, were disappointed.
ECB President Christine Lagarde also aggravated a market selloff by saying it was not the central bank's job to close the spread between the borrowing costs of various members, comments which she later tried to roll back. are rushing to introduce travel bans, extra financial liquidity and monetary easing as the rapid spread of the virus across the world slams the brakes on the global economy.
The dollar rose 0.88% to 105.58 yen on Friday, on course for a 0.2% weekly advance.
With signs of financial stress emerging across different markets, the New York Federal Reserve said it would make the money available in three tranches of $500 billion each and that it would start purchasing a broader range of U.S. Treasury securities.
The Fed meets next week and many analysts now expect the central bank to chop its own target policy rate, quite possibly to zero, and give markets new guidance about how it plans to combat the economic fallout from the coronavirus.
The Bank of Japan, which will announce a policy decision next week Thursday after the Fed, announced the unscheduled purchase of 200 billion yen ($1.90 billion) in government debt on Friday. It also said it would inject an additional 1.5 trillion yen in two-week lending in a sign of concern that liquidity could dry up. basis swap spreads for the yen JPYCBS3M= and the pound GBPCBS3M=ICAP 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. Canadian dollar CAD=D3 rose slightly to C$1.3894 against the greenback, pulling back from a four-year low.
Prime Minister Justin Trudeau's wife has tested positive for the coronavirus, his office said. Trudeau is not showing any symptoms but will stay in isolation for 14 days, according to his office. Australian AUD=D3 and New Zealand dollars NZD=D3 managed to bounce more than half a percent against the greenback in Asian trade. The antipodeans were mauled on Thursday as investors shunned riskier currencies that are linked to the global commodities trade.
The Reserve Bank of Australia also injected an unusually large amount of cash into the financial system on Friday as panic spread. ($1 = 105.0200 yen)
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