US$ slips on stimulus plan, riskier currencies' gain

London

THE US dollar slipped on Wednesday after US politicians agreed on a US$2 trillion stimulus package that steadied money market nerves and prompted investors to buy back into riskier currencies.

The export-exposed Australian dollar and Norwegian crown made sharp gains, while sterling also rallied from the lows of recent weeks, which were precipitated by a scramble for US dollars.

Panicked investors fearful about the novel coronavirus pandemic had liquidated almost everything for dollars, with the world's most liquid currency seen as a haven in times of crisis.

US Senate majority leader Mitch McConnell announced a breakthrough on a package to shield the world's largest economy from the economic fallout of the outbreak. It was expected to be put to a vote on Wednesday.

"We are seeing the most oversold currencies bought back on the back of the stimulus package," said Kenneth Broux, FX strategist at Societe Generale. "The pandemic is still spreading and policymakers have put all their chips on the table. We will have to wait now to see how things will pan out," he added.

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The dollar fell against a basket of currencies, last down 0.2 per cent.

Among the gainers were the Australian dollar, Norwegian crown and British pound, all up around one per cent.

The euro was last up nearly 0.3 per cent versus the greenback after losing some of its early gains, changing hands at US$1.08145.

The dollar barely shifted against the Japanese yen and Swiss franc, both also seen as safe havens.

The US stimulus follows co-ordinated action by central banks around the world to boost the supply of dollars in an attempt to ease stress in money markets.

Expected price swings on some of the world's most actively-traded currencies retreated, with implied volatility on one-month euro-dollar and pound-dollar options falling.

But there was no similar swing in cross-currency volatility in the Japanese yen versus the dollar, which analysts said reflected Japanese investors still struggling to snap up dollars ahead of the country's fiscal year end next week.

"There's a lot of reasons to believe that we're not out of the woods yet. People still feel that the downside risk is far more prevalent," said Chris Weston, head of research at Melbourne brokerage Pepperstone. REUTERS