March 12, 2020 / 3:06 PM / 22 days ago

FOREX-Euro falls as markets unimpressed with ECB stimulus; dollar up sharply

    * Euro falls after ECB decides not to cut rates
    * Dollar jumps, analysts cite swap spread rise
    * Safe havens like the yen and franc remain in demand
    * Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

 (Adds new comment, updates prices, changes byline, dateline; previous LONDON)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 12 (Reuters) - The euro weakened on Thursday, as investors were unimpressed by the
European Central Bank's stimulus measures to fight the economic fallout from the coronavirus outbreak.
    Investors instead flocked to safe-haven currencies such as the U.S. dollar and Japanese yen. 
    The ECB approved fresh stimulus measures on Thursday to help the euro zone economy cope with the
growing cost of the coronavirus epidemic, but kept interest rates unchanged
    "The ECB has been grasping for straws," said Erik Bregar, head of FX strategy, at Exchange Bank of
Canada, in Toronto.
    "Arguably they still don't know what to do. But they very much felt the pressure to at least do
something because every other central bank is lowering interest rates or doing multi-policy fronts that
will help banks and businesses."
    The fact that the ECB did not cut interest rates was a "minor surprise" for the market given that the
money market curve had priced in a 10 basis-point easing.
    In mid-morning trading, the euro fell more than 1% to $1.1172
    The dollar rebounded sharply after the ECB announcement, and was last up 1% against a basket of
currencies at 97.513 
    Analysts said the dollar had rallied as swap spreads on major currencies blew out and investors
scrambled for the U.S. currency.
    "It's all about dollar liquidity, the cross-curency basis swap has blown out. I would assume it's
banks/corporates driven. We are moving to the next phase of the selloff," said Kenneth Broux, a strategist
at Societe Generale.
     The dollar had earlier struggled after U.S. President Donald Trump banned travel from Europe to stem
the coronavirus.
    With the latest ban posing a fresh disruption to the global economy, traders were also disappointed by
the lack of broad measures in Trump's plan to fight the pathogen, prompting traders to bet on further
aggressive easing by the Federal Reserve.
    Money markets are now expecting another 100 bps of easing from the Fed by next week taking the
benchmark policy interest rates to zero after a hefty half point rate cut last week.
    The dollar fell 0.5% against the Japanese currency to 105.18, below a four-year low on
Monday, but it rose 1% against the Swiss franc to 0.9478.
    Risk aversion was the dominant theme in currency markets on Thursday as Asian, European, and U.S.
stock markets were a sea of red, forcing traders to stampede out of currencies heavily geared to the
global economy such as the Norwegian crown and the Australian dollar.
    Trump announced on Wednesday a ban on travellers from 26 European countries entering the United States
for a month.
    He unveiled economic steps to counter the virus but his address from the Oval Office was light on
medical measures beyond assurances that "the virus has no chance against us".
    
    ========================================================
    Currency bid prices at 10:47/AM (1447 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
                                              Session                                           
 Euro/Dollar      EUR=        $1.1147        $1.1267     -1.07%         -0.58%      +1.1333     +1.1134
 Dollar/Yen       JPY=        105.1200       104.5300    +0.56%         -3.44%      +105.4900   +103.1100
 Euro/Yen         EURJPY=     117.16         117.73      -0.48%         -3.93%      +118.0100   +116.3200
 Dollar/Swiss     CHF=        0.9477         0.9387      +0.96%         -2.08%      +0.9492     +0.9323
 Sterling/Dollar  GBP=        1.2620         1.2820      -1.56%         -4.81%      +1.2849     +1.2585
 Dollar/Canadian  CAD=        1.3808         1.3776      +0.23%         +6.33%      +1.3853     +1.3752
 Australian/Doll  AUD=        0.6335         0.6484      -2.30%         -9.77%      +0.6492     +0.6322
 ar                                                                                             
 Euro/Swiss       EURCHF=     1.0566         1.0574      -0.08%         -2.64%      +1.0579     +1.0545
 Euro/Sterling    EURGBP=     0.8831         0.8790      +0.47%         +4.45%      +0.8913     +0.8776
 NZ               NZD=        0.6161         0.6267      -1.69%         -8.54%      +0.6277     +0.6153
 Dollar/Dollar                                                                                  
 Dollar/Norway    NOK=        10.1447        9.6906      +4.69%         +15.56%     +10.2450    +9.6889
 Euro/Norway      EURNOK=     11.3192        10.9190     +3.67%         +14.95%     +11.4346    +10.9054
 Dollar/Sweden    SEK=        9.7720         9.5158      +1.57%         +4.55%      +9.7877     +9.5016
 Euro/Sweden      EURSEK=     10.8908        10.7227     +1.57%         +4.03%      +10.9476    +10.7284
 
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee in London
Editing by Marguerita Choy)
  
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