FOREX-Dollar falls for a second day on Fed stimulus

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee
LONDON, March 24 (Reuters) - The dollar slipped for a second
consecutive day on Tuesday after the U.S. Federal Reserve
unveiled fresh measures to supply precious liquidity into
funding markets, sending risky currencies such as the Australian
dollar soaring.
The Fed announced unlimited quantitative easing and
programmes to support credit markets on Monday in a drastic bid
to backstop an economy reeling from emergency restrictions on
commerce to fight the coronavirus.
Against a basket of its rivals =USD , the dollar fell 0.5%
to 101.52, down more than 1% from Monday's highs and having hit
a more than three-year high of 102.99 on Friday.
"The dollar funding conditions are easing slightly compared
with a week ago, though I wouldn't say things are normal. While
the Fed is pumping dollars, we still need to wait and see if
that money will flow to every corner of the economy," said
Koichi Kobayashi, chief manager of forex at Mitsubishi Trust
Bank.
While the Fed's latest measures were seen to have
effectively broken the spreading freeze in the dollar funding
markets in the short-term, the shock to the real economy is
expected to last for a far longer period with latest PMI data
offering a glimpse of the pain. Japan posted its biggest ever services sector decline and
factory activity shrank at its fastest in a decade, consistent
with a 4% economic contraction this year. The picture in
Australia was similar.
Ulrich Leuchtmann, head of FX and commodity research at
Commerzbank said in a note that as more economies enact
draconian measures to lock down their economies, the global
economy would be massively constrained in the near future and
markets could quickly turn back into risk-off mode.
But in early London trading, battered currencies rallied.
The euro gained 1% to $1.0834 EUR=EBS , bouncing back from
a near three-year low of $1.0636 in the previous session.
The British pound also rose 0.9% to $1.1650 GBP=D3 , up more
than two cents from its 35-year low of $1.1413 set last week.
The Fed announced various programmes including purchases of
corporate bonds, guarantees for direct loans to companies and a
plan to get credit to small and medium-sized
business. Trading remained volatile, with the Australian dollar rising
2.0% to $0.5952 AUD=D3 , extending its recovery from a 17-year
low of $0.5510 touched last week.

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