* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
* ECB did not follow Fed, BoE in cutting rates
* Traders watch equity market melt down
* Policymakers struggle with coronavirus response
By Stanley White
TOKYO, March 13 (Reuters) - The dollar stood tall on Friday
as investors scrambled for the world's most liquid currency amid
deepening panic about the coronavirus, while the euro nursed
losses after the European Central Bank disappointed by not
cutting rates.
The greenback held gains against most currencies after a
blowout in swap spreads showed investors are facing a shortage
of dollars as equity markets plunged on fears about the global
economic impact of the flu-like virus.
The ECB on Thursday unveiled a stimulus package that
provides loans to banks with rates as low as -0.75% and
increases bond purchases. The Federal Reserve moved to provide $1.5 trillion in
short-term liquidity and changed the durations of Treasuries it
buys, but money markets show investors expect the Fed will have
to go even further to restore calm to financial markets.
The government in Italy, which has become Europe's hot spot
for coronavirus infections, has effectively put the entire
country on lockdown to try to slow the virus.
Investors have so far expressed disappointment with the
government response to rising infections in the United States,
and traders warn there could be more disruptions in a broad
range of financial markets.
"Risk off used to benefit the yen, but now we see that risk
off is supporting the dollar," said Takuya Kanda, general
manager of the research department at Gaitame.com Research
Institute in Tokyo.
"We are in panic mode, because we don't know how far stocks
will fall."
The euro EUR=EBS traded at $1.1202, following a 0.72%
decline on Thursday in the wake of the ECB decision. For the
week, the common currency was on course for a 0.7% decline.
Against the pound GBP=D3 , the dollar rose slightly to
$1.2541 in Asia on Friday, which followed its biggest one-day
gain against sterling since July 2016. The dollar was up 3.8%
against sterling this week, its best performance since October
2016.
The greenback held gains against the Swiss franc CHF=EBS ,
trading at 0.9435, headed for a 0.7% weekly gain.
The ECB rolled out yet another stimulus package on Thursday
to help fight the coronavirus pandemic but did not join its
counterparts in the United States and Britain by cutting rates.
Investors, who had bet the ECB could cut rates at least 10
basis points and possibly more, were disappointed.
ECB President Christine Lagarde also aggravated a market
selloff by saying it was not the central bank's job to close the
spread between the borrowing costs of various members, comments
which she later tried to roll back. Authorities are rushing to introduce travel bans, extra
financial liquidity and monetary easing as the rapid spread of
the virus across the world slams the brakes on the global
economy.
The dollar rose 0.88% to 105.58 yen JPY=EBS on Friday, on
course for a 0.2% weekly advance.
With signs of financial stress emerging across different
markets, the New York Federal Reserve said it would make the
money available in three tranches of $500 billion each and that
it would start purchasing a broader range of U.S. Treasury
securities.
The Fed meets next week and many analysts now expect the
central bank to chop its own target policy rate, quite possibly
to zero, and give markets new guidance about how it plans to
combat the economic fallout from the coronavirus.
The Bank of Japan, which will announce a policy decision
next week Thursday after the Fed, announced the unscheduled
purchase of 200 billion yen ($1.90 billion) in government debt
on Friday. It also said it would inject an additional 1.5
trillion yen in two-week lending in a sign of concern that
liquidity could dry up. Cross-currency basis swap spreads for the yen JPYCBS3M=
and the pound GBPCBS3M=ICAP blew out in what traders say is a
sign of a dollar shortage.
Highlighting the sense of crisis, senior officials from the
Group of Seven talked on Thursday and confirmed they will
cooperate closely as equities tumble and corporate bond spreads
widen. The Canadian dollar CAD=D3 rose slightly to C$1.3894
against the greenback, pulling back from a four-year low.
Prime Minister Justin Trudeau's wife has tested positive for
the coronavirus, his office said. Trudeau is not showing any
symptoms but will stay in isolation for 14 days, according to
his office. The Australian AUD=D3 and New Zealand dollars NZD=D3
managed to bounce more than half a percent against the greenback
in Asian trade. The antipodeans were mauled on Thursday as
investors shunned riskier currencies that are linked to the
global commodities trade.
The Reserve Bank of Australia also injected an unusually
large amount of cash into the financial system on Friday as
panic spread. = 105.0200 yen)