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CURRENCIES

Greenback maintains gains after weeks of rally

London

THE US dollar firmed on Thursday but paused its strong rally of recent weeks, after the Federal Reserve helped US currency liquidity in financial markets by making it easier for other central banks to access the greenback.

Markets have been spooked since US President Donald Trump's warning on Tuesday of a painful two weeks ahead in fighting the novel coronavirus, even with strict social distancing measures.

The United States now has over 200,000 confirmed Covid-19 cases - the most worldwide - which has sent investors flocking to safe-haven assets such as the dollar.

Still, analysts do not expect the dollar rally of recent weeks to continue further, following the Federal Reserve measures in March, when it established dollar swop lines with other central banks and let them enter repurchase agreements.

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The cost to borrow dollars in the euro and yen funding markets fell considerably after the Fed liquidity injections, with three-month FX swap spreads snapping back from 2008 global financial crisis levels last month.

Costs blew out in mid-March as stress in the dollar funding market caused by the novel coronavirus pandemic led to a global scramble to secure dollar funds.

"Flow-wise this must mean a preference out there to receive dollar Libor, which translates into a bias to lend dollars," said Padhraic Garvey, regional head of research at ING.

The euro traded down 0.3 per cent at US$1.0934 as the dollar advanced.

The greenback also rose against the Japanese yen, trading last up 0.2 per cent at 107.38 yen, though the Japanese currency protected its safe-haven status well this week, advancing against its US counterpart.

The Fed's efforts to improve dollar liquidity have turned out to be beneficial for other currencies too, such as the Norwegian crown, which advanced further on Thursday to hit a three-week high of 11.1820 against the euro. It was last trading up 2 per cent at 11.24.

"The Norwegian crown is the least liquid currency in the G-10 space so when a crisis hits, it gets hammered," said Petr Krpata, chief EMEA FX and IR strategist at ING. "So the improvement in dollar funding has already started manifesting itself in the crown, which has rallied sharply so far this week."

On top of that, "the crown is the cheapest currency in the G-10 space", so is appealing, he added. REUTERS

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