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US dollar soaks up gains in choppy market, sentiment still fragile

[TOKYO] The US dollar recouped lost ground on the yen and extended gains against risk currencies on Tuesday, in a choppy trading session that underlined fragile confidence in frazzled markets.

Market liquidity was tight and investors remained nervous, after coordinated moves by central banks had 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, pound, as well as the Australian and New Zealand counterparts and most emerging markets' currencies.

Investors and businesses are scrambling for dollars as the outlook grows darker by the day. China has reported a fresh rise in cases. Malaysia is preparing to enter lockdown amid ever tighter measures in Europe and the United States.

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

"Liquidity is even worse compared with yesterday. Even the gold has been sold sharply," said Kazushige Kaida, head of forex at State Street Bank in Tokyo.

"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 crisis (in 1998)."

The Australian dollar, seen as sensitive to global growth due to the country's link to commodities, fell 0.7 per cent to a fresh 11-year low of US$0.6065.

The British pound is also under pressure, dogged by worries about not only Britain's exit from the European Union but also 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 given the pathogen's breakneck spread across the world which has put many nations on virtual lockdowns.

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.

There is no clarity on that front, with global cases now rising to 174,100 with 6,700 deaths, prompting countries to shut borders and take increasingly drastic measures to try to reduce the severity of the outbreak.

REUTERS