Liquidity is tight and investors edgy despite central banks' actions

Tokyo

THE US dollar recouped lost ground on the yen and extended gains against risk currencies on Tuesday, in a choppy trading session pointing to fragile confidence in the markets.

Market liquidity was tight and investors remained nervous, after coordinated moves by central banks spectacularly failed to quell trepidation over the coronavirus pandemic.

The US dollar rose 0.8 per cent to 106.69 yen and gained on the euro, the pound, the Australian and New Zealand counterparts and most emerging markets' currencies.

China has reported a fresh rise in cases. Malaysia is going for lockdown amid tighter measures in Europe and the US.

Adding to jitters, the Philippines closed its stock market and suspended trade in bonds and currencies. Currency trade is set to resume tomorrow; other markets are indefinitely shut in a reminder of the risks to liquidity.

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Kazushige Kaida, head of forex at State Street Bank in Tokyo, said: "This is a world I have never seen before. This crisis is more incomprehensible than previous crises like the tech bubble burst (in 2000) and the LTCM (long-term capital management) crisis (in 1998)."

The Australian dollar fell 0.7 per cent to US$0.6065, a new 11-year low.

The British pound is also under pressure, dogged by worries about the country's exit from the European Union and its sizeable current account deficit. Sterling traded at US$1.2222, down 0.4 per cent and near a five-month low of US$1.2203 hit in the previous session.

Investors are also shunning many emerging market currencies. MSCI emerging market currency index dropped 0.2 per cent, staying at its lowest level since late 2018. The Korean won hit its lowest since 2010.

A rout on Wall Street on Monday stemming from fears over the coronavirus crisis in the West trumped the Federal Reserve's emergency move to slash rates on Sunday.

Investors took the Fed action, joined by central banks in Japan, Australia, New Zealand and elsewhere, as insufficient. Some analysts said the hasty moves may have backfired as investors were spooked over the possible panic among policymakers.

"Central banks are pressing the gas pedal to the floor. But the car is bogged down in a quagmire that is called coronavirus, so it won't move forward," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

"Until the outbreak stops, for investors, it is time for patience," she said. REUTERS