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The safe-haven yen gained sharply, but the dollar held onto hefty overnight gains against other currencies on Wednesday, as fears over the coronavirus pandemic kept markets frazzled despite massive injections of liquidity by central banks.
The yen rose 0.8% to 106.80 per dollar with a flight to safety in the Asia afternoon as stock markets around the region extended losses. MKTS/GLOB
The pound and euro were ahead, but struggled to win back more than a fraction of the ground ceded to the dollar on Tuesday. The Aussie and kiwi languished below 60 cents.
Markets have crumbled this month as investors liquidated nearly everything for cash - driving up the dollar's value and the cost of borrowing the greenback abroad.
"Funding strains are still there, and I think that is what's spooking the market still," said Moh Siong Sim, currency analyst at the Bank of Singapore.
The world is adopting a war footing as the pandemic spreads and country after country announces draconian lockdowns. The virus has killed over 8,000 people globally, while the total number of cases is approaching 200,000, a Reuters tally shows.
While crisis is also being met with massive fiscal and monetary policy measures, there are only tentative signs that it is working.
The Bank of Japan on Tuesday made its biggest injection of dollar funds since 2008, helping to reduce the cost of dollars, relfected in cross-currency basis swap spreads. spread on dollar/yen swaps JPYCBS3M= narrowed to around -58 basis points from 120 basis points on Tuesday.
Three-month euro/dollar cross-currency basis swap spreads EURCBS3M=ICAP had also fallen back overnight to 39 basis points from as high as 120 basis points.
But it failed to improve market sentiment.
"The newsflow is about as fluid as we have seen," said Chris Weston, head of research at Melbourne brokerage Pepperstone.
"It mirrors that of the (2008) financial crisis if not worse ... it's very difficult to deal with this and I think FX traders don't really know where to look at the moment."
The pound pared some gains to sit 0.4% higher at $1.2094 and the euro was steady at $1.1007.
Export exposed currencies fared much worse.
The Australian dollar AUD=D3 has lost nearly 15% against the greenback this year and fell below 60 cents for the first time since 2003 overnight. It last stood at $0.5930, while the kiwi NZD=D3 was $0.5942.
Traders have also been watching volatility in the U.S. Treasury market to get a sense of the demand for dollars.
The yield on benchmark U.S. 10-year Treasuries soared 34 basis points overnight, the largest single-day rise since 2004. US/
"It all stems from a shortage of US dollars," said Gunter Seeger, senior vice president in investment-grade fixed income at New York asset manager PineBridge Investments.
"People are very, very nervous," Seeger said.
"Everyone's nervous about the virus, about oil prices, about their job, about everything."
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