FOREX-Dollar shines as pandemic drives rush for liquid assets

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
* ECB did not follow Fed, BoE in cutting rates
* Traders watch equity market melt down
* Policymakers struggle with coronavirus response

By Stanley White
TOKYO, March 13 (Reuters) - 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 investors 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 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 minus-0.75% and
increases bond purchases. The 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.
Italy, which has become Europe's hot spot for coronavirus
infections, has effectively put its 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 EUR=EBS traded at $1.1181, 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 0.9% decline.
Against the pound GBP=D3 the dollar eased slightly to
$1.2585 in Asia on Friday, but that followed its biggest one-day
gain against sterling since July 2016.
The greenback was also strong against the Swiss franc
CHF=EBS , trading at 0.9450 following a 0.7% gain on Thursday.
The ECB rolled out yet another stimulus package on Thursday
to help fight off the coronavirus pandemic 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. Authorities 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 held steady at 104.62 yen JPY=EBS , on course
for its third weekly decline.
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.
Cross-currency basis swap spreads for the yen JPYCBS3M=
and the pound GBPCBS3M=ICAP blew out on Thursday 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. Elsewhere in currencies, the 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.