- Dollar index on track for biggest weekly fall in decade
- Market could see more volatility toward month-end
- Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
(Adds comment, graph, updates prices)
The dollar was on track for its biggest weekly decline in more than a decade on Friday, as trillions of dollars worth of stimulus efforts by governments and central banks helped temper a rout in global markets triggered by the coronavirus pandemic.
The dollar had been riding high in March amid a drive for dollars by investors trying to get their hands on the world's most liquid currency which is considered a safe haven.
But big government spending pledges, including a $2.2 trillion U.S. package, and co-ordinated efforts by central banks around the world to increase the supply of dollars have supported a rally in other major currencies.
An unprecedented jump in U.S. jobless claims on Thursday underscored the coronavirus's impact on the economy, further weakening the dollar.
The dollar consolidated losses on Friday, and was flat on the day against major currencies. It remained on course for around a 3% fall for the week - its biggest decline since May 2009. =USD
The swing underscores the currency market's volatility after the dollar index last week racked up its biggest weekly gain since the financial crisis.
"What we are seeing is abating stress in the money markets. Action by central banks has been successful so far and a shortage of dollars has been taken of the table," said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank.
Against the yen, the dollar fell 0.9% on Friday to 108.600 yen JPY=EBS , as Japanese investors and companies repatriated funds before their fiscal year ends next week.
The dollar was broadly flat against the euro at $1.10220 and remained on course for around a 3% gain over the dollar this week. EUR=EBS
Sterling and the Australian dollar edged up around 0.2% apiece as they consolidated the week's gains. GBP=D3 AUD=D3
But the dollar was up more than 1% against the export-exposed Norwegian crown and South African rand. NOK= ZAR=
"The sharp reversal of the US dollar yesterday was clear evidence that the deluge of measures from the Federal Reserve to address dollar liquidity problems were finally becoming more successful," said analysts at MUFG in a note.
The dollar funding squeeze in the interbank market has abated considerably this week. Currency basis swap spreads, the premium investors need to pay over interbank rates to fund dollars through foreign currency swaps, fell considerably.
The euro and sterling are now trading at a slight premium to the dollar in three-month currency swap rates, after being deep in negative territory last week. EURCBS3M=ICAP GBPCBS3M=ICAP
Even the dollar/yen basis has tightened by around 100 basis points in a week. JPYCBS3M=TKFX
"Now that the surge in demand for dollars overseas has been met by the Fed's new improved swap lines, economic and medical fundamentals are taking over," said analysts at BDSwiss in a note.
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