FOREX-Dollar pulls back as panic selling eases, on course for biggest loss in decade

* Dollar slips on U.S. stimulus
* Dollar index on track for biggest loss in decade
* Market could see more volatility toward month-end
* Mexican peso pares gains after credit downgrade
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, March 27 (Reuters) - The dollar was on track for its
biggest weekly fall in more than a decade on Friday as a series
of stimulus measures around the world, including a $2.2 trillion
U.S. package, helped temper a rout in global markets triggered
by the coronavirus pandemic.
Data showing an unprecedented rise in U.S. jobless claims
underscored the virus' devastating impact on the economy, but
subsequent rise in Wall Street shares raised hopes that a
torrent of selling in risk assets may have run its course for
now. MKTS/GLOB
The dollar fell more than 1% to 108.35 yen JPY= , due
largely to Japanese repatriating funds ahead of their fiscal
year end on March, after having shed 1.44% overnight. The euro
also stayed firm at $1.1041 EUR= after a jump of 1.40% on
Thursday.
The biggest mover among major currencies was sterling, which
rose 2.8% overnight before giving up part of that gain in early
Asian trade. The British pound last stood at $1.2183 GBP=D4 .
An easing in dollar funding conditions is helping to reduce
demand for the dollar.
The number of Americans filing claims for unemployment
benefits surged to a record of more than 3.28 million last week
as strict measures to contain the coronavirus pandemic unleashed
a wave of layoffs.
While that eclipsed the previous record of 695,000 set in
1982 and was up 3 million from last week. The forecast ranged
from one to five million or even larger.
"Until last week, we had been fussing over the difference of
tens of thousands in this data. What we can say now is,
basically markets have factored in the fact that the economy
will be hit hard," said Kazushige Kaida, head of foreign
exchange at State Street Bank.
"It helped that the U.S. Senate has passed the stimulus
bills. There appears to be no repeat of the nightmare during the
previous crisis," he said.
He was referring to market shocks after the U.S. House of
Representatives voted down an emergency financial bailout bill
in late September 2008 following the collapse of Lehman
Brothers.
The unprecedented $2.2 trillion stimulus was expected to be
approved by the U.S. House of Representatives on Friday, or on
Saturday. The dollar's index against six other major currencies =USD
edged down after having lost 1.5% on Thursday, its biggest daily
fall in almost four years.
So far this week it is down 3.1%. If sustained by the end of
U.S. trade, that would mark the biggest weekly decline since
2009, underscoring the currency market's extreme volatility
after last week racking up its biggest weekly gain since the
global financial crisis more than a decade ago.
The dollar's gains until last week were driven by rush to
secure dollar funding amid the rout in global share markets and
the looming spectre of major economic slump that looks set to
diminish cashflows in coming months.
But the dollar funding squeeze has abated considerably this
week.
Currency basis swap spreads, the premium investors need to
pay over interbank rates to fund dollar through foreign currency
swaps, have fallen considerably.
Even the dollar/yen basis, which had stayed elevated until
the middle of this week, has dropped, with three-month spread
now at around 40 basis points JPYCBS3M=TKFX , compared with
high around 140 basis points last week.
Highly choppy currency trade could continue towards the end
of month, when there tend to be large flows from corporate and
investors to hedge their currency exposures.
In particular, many asset managers may need to adjust their
currency hedge positions after wild swings in global share
prices.
The dollar's rises until last week, in particular against
the Australian dollar and the New Zealand dollar were primarily
driven by such currency hedge adjustment, said analysts at
National Bank of Australia in report.
"We can well believe that we are for an extremely rocky ride
in the currency markets between now and month end," they said.
"Some will not yet have adjusted, and some will now find
themselves under-hedged given the big equity reversal so far
this week. And, some may be looking to implement changes to
strategic hedge ratios at the same time. Buckle up."
The Australian dollar traded at $0.6068 AUD=D4 , having
gained more than 10% from its 17-year low of $0.5510 touched on
Thursday last week.
The New Zealand dollar NZD=D4 stood at $0.5974.
The Mexican peso dropped 1.5%, giving up a part of its
recovery this week, after credit ratings agency S&P on Thursday
cut Mexico's sovereign rating to BBB from BBB+ in anticipation
of an economic hit from the coronavirus pandemic and a plunge in
oil prices. The peso traded at 23.195 to the dollar MXN= , down about
1.2%. Still it is up more than 5% so far this week.
S&P has downgraded many other oil producing countries
following sharp falls in oil prices.