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FOREX-Euro falls as markets unimpressed with ECB stimulus; dollar up sharply

By Gertrude Chavez-Dreyfuss

* Euro falls after ECB decides not to cut rates * Dollar jumps, analysts cite swap spread rise * Safe havens like the yen and franc remain in demand * Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh (Adds new comment, updates prices, changes byline, dateline; previous LONDON) By Gertrude Chavez-Dreyfuss NEW YORK, March 12 (Reuters) - The euro weakened on Thursday, as investors were unimpressed by the European Central Bank's stimulus measures to fight the economic fallout from the coronavirus outbreak. Investors instead flocked to safe-haven currencies such as the U.S. dollar and Japanese yen. The ECB approved fresh stimulus measures on Thursday to help the euro zone economy cope with the growing cost of the coronavirus epidemic, but kept interest rates unchanged "The ECB has been grasping for straws," said Erik Bregar, head of FX strategy, at Exchange Bank of Canada, in Toronto. "Arguably they still don't know what to do. But they very much felt the pressure to at least do something because every other central bank is lowering interest rates or doing multi-policy fronts that will help banks and businesses." The fact that the ECB did not cut interest rates was a "minor surprise" for the market given that the money market curve had priced in a 10 basis-point easing. In mid-morning trading, the euro fell more than 1% to $1.1172 The dollar rebounded sharply after the ECB announcement, and was last up 1% against a basket of currencies at 97.513 Analysts said the dollar had rallied as swap spreads on major currencies blew out and investors scrambled for the U.S. currency. "It's all about dollar liquidity, the cross-curency basis swap has blown out. I would assume it's banks/corporates driven. We are moving to the next phase of the selloff," said Kenneth Broux, a strategist at Societe Generale. The dollar had earlier struggled after U.S. President Donald Trump banned travel from Europe to stem the coronavirus. With the latest ban posing a fresh disruption to the global economy, traders were also disappointed by the lack of broad measures in Trump's plan to fight the pathogen, prompting traders to bet on further aggressive easing by the Federal Reserve. Money markets are now expecting another 100 bps of easing from the Fed by next week taking the benchmark policy interest rates to zero after a hefty half point rate cut last week. The dollar fell 0.5% against the Japanese currency to 105.18, below a four-year low on Monday, but it rose 1% against the Swiss franc to 0.9478. Risk aversion was the dominant theme in currency markets on Thursday as Asian, European, and U.S. stock markets were a sea of red, forcing traders to stampede out of currencies heavily geared to the global economy such as the Norwegian crown and the Australian dollar. Trump announced on Wednesday a ban on travellers from 26 European countries entering the United States for a month. He unveiled economic steps to counter the virus but his address from the Oval Office was light on medical measures beyond assurances that "the virus has no chance against us". ======================================================== Currency bid prices at 10:47/AM (1447 GMT) Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Euro/Dollar EUR= $1.1147 $1.1267 -1.07% -0.58% +1.1333 +1.1134 Dollar/Yen JPY= 105.1200 104.5300 +0.56% -3.44% +105.4900 +103.1100 Euro/Yen EURJPY= 117.16 117.73 -0.48% -3.93% +118.0100 +116.3200 Dollar/Swiss CHF= 0.9477 0.9387 +0.96% -2.08% +0.9492 +0.9323 Sterling/Dollar GBP= 1.2620 1.2820 -1.56% -4.81% +1.2849 +1.2585 Dollar/Canadian CAD= 1.3808 1.3776 +0.23% +6.33% +1.3853 +1.3752 Australian/Doll AUD= 0.6335 0.6484 -2.30% -9.77% +0.6492 +0.6322 ar Euro/Swiss EURCHF= 1.0566 1.0574 -0.08% -2.64% +1.0579 +1.0545 Euro/Sterling EURGBP= 0.8831 0.8790 +0.47% +4.45% +0.8913 +0.8776 NZ NZD= 0.6161 0.6267 -1.69% -8.54% +0.6277 +0.6153 Dollar/Dollar Dollar/Norway NOK= 10.1447 9.6906 +4.69% +15.56% +10.2450 +9.6889 Euro/Norway EURNOK= 11.3192 10.9190 +3.67% +14.95% +11.4346 +10.9054 Dollar/Sweden SEK= 9.7720 9.5158 +1.57% +4.55% +9.7877 +9.5016 Euro/Sweden EURSEK= 10.8908 10.7227 +1.57% +4.03% +10.9476 +10.7284 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee in London Editing by Marguerita Choy)