March 13, 2020 / 2:37 PM / 21 days ago

FOREX-Dollar rallies as stock markets recover; yen down sharply

    * Dollar surges, adds more than 2% vs yen
    * ECB did not follow Fed, BoE in cutting rates
    * European markets rebound after Thursday's meltdown
    * Policymakers struggle with coronavirus response
    * Graphic: World FX rates in 2020

 (Adds new comment, FX table, updates prices, changes byline, dateline, previous LONDON)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 13 (Reuters) - The dollar advanced on Friday, posting sharp gains against the
safe-haven yen as stock markets recovered globally and investors cheered efforts made by governments and
policymakers to address the economic fallout from the coronavirus outbreak.
    The greenback extended gains against several currencies after a blowout in swap spreads on Thursday
signaled that investors want dollars. While those spreads came in on Friday, the dollar held strong. 
    But market participants said signs of dollar funding stress persist and policymakers probably need to
do more.
    "Underlying concerns regarding the economic fallout from the coronavirus on credit markets broadly
remain," said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto. 
    "It may be tempting to look for signs of a low in global stocks but with the underlying issue - the
coronavirus - still unchecked, we think that is premature at this point," he added.
    He noted that the cost of raising U.S. dollar funds in the cross-currency euro swap market has widened
again on Friday after narrowing the day before on the Federal Reserve's announcement to inject more
liquidity into the banking system. 
    Wider spreads in the cross currency basis swap market suggested increased signs of U.S. dollar
shortage for corporates seeking funding.
    In mid-morning trading, the dollar gained 2.2% against the yen to 106.94. It also rallied
versus another safe haven, the Swiss franc, rising 0.9% to 0.9508 franc.
    Against a basket of currencies, the dollar rose 0.6% to 98.085.
    The euro, meanwhile, nursed losses despite European Central Bank policymakers trying to reassure
markets. European assets sold off on Thursday after investors were underwhelmed by the bank's stimulus
measures. It was last down 0.5% at $1.1125.
    The ECB on Thursday announced a stimulus package that provides loans to banks with rates as low as
-0.75% and increases bond purchases, but it did not join its counterparts in the United States and Britain
by cutting rates.
    ECB President Christine Lagarde aggravated a market sell-off by saying it was not the central bank's
job to close the spread between the borrowing costs of various members, comments that  she later tried to
roll back.
    The pound also weakened 0.3% against the dollar to$1.2510.
    The greenback's rebound this week reflects its role as the world's most liquid currency, which
investors seek in times of stress.
    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 Australian and Canadian dollars bounced on Friday after getting mauled on Thursday as
investors shunned riskier currencies that are linked to the global commodities trade.
    Currency bid prices at 10:18AM (1418 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
 Euro/Dollar      EUR=        $1.1122        $1.1183     -0.55%         -0.79%      +1.1221     +1.1104
 Dollar/Yen       JPY=        106.8100       104.6300    +2.08%         -1.88%      +107.4900   +104.5100
 Euro/Yen         EURJPY=     118.79         117.01      +1.52%         -2.59%      +119.7600   +116.9000
 Dollar/Swiss     CHF=        0.9503         0.9437      +0.70%         -1.81%      +0.9554     +0.9423
 Sterling/Dollar  GBP=        1.2499         1.2571      -0.57%         -5.73%      +1.2624     +1.2455
 Dollar/Canadian  CAD=        1.3877         1.3926      -0.35%         +6.86%      +1.3947     +1.3782
 Australian/Doll  AUD=        0.6278         0.6234      +0.71%         -10.58%     +0.6326     +0.6233
 Euro/Swiss       EURCHF=     1.0571         1.0555      +0.15%         -2.59%      +1.0618     +1.0551
 Euro/Sterling    EURGBP=     0.8895         0.8894      +0.01%         +5.22%      +0.8940     +0.8845
 NZ               NZD=        0.6129         0.6086      +0.71%         -9.01%      +0.6160     +0.6087
 Dollar/Norway    NOK=        9.9663         10.1613     -1.92%         +13.53%     +10.2363    +9.8832
 Euro/Norway      EURNOK=     11.0850        11.3478     -2.32%         +12.68%     +11.4520    +11.0055
 Dollar/Sweden    SEK=        9.7484         9.7346      +0.00%         +4.29%      +9.7754     +9.6258
 Euro/Sweden      EURSEK=     10.8415        10.8414     +0.00%         +3.56%      +10.9411    +10.7743
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Iain Withers in London)
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