March 23, 2020 / 7:43 AM / 6 days ago

FOREX-Dollar up but doubts about U.S. stimulus vote narrow gains

* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E

* Dollar retains advantage amid coronavirus crisis

* U.S. lawmakers trying to pass fiscal stimulus

* Travel curbs raise risk of global recession

By Stanley White

TOKYO, March 23 (Reuters) - The dollar held gains against most peers on Monday as fresh declines in stocks accelerated the flight to cash, although it lost ground against the euro and yen as U.S. lawmakers failed to pass a stimulus package to fight the coronavirus.

Legislators in Washington were unable to clear the stimulus measures on Sunday and a vote on Monday was ruled out as Republicans and Democrats tussled over the details of a proposed $1 trillion spending package.

Some investors who had bet on a big stimulus vented their frustration by selling the dollar against the yen and the euro, but analysts warn this move is likely short-lived as the majority of investors unwind positions to hold cash.

“We’ve moved from risk off to a phase where major players are competing with each other for the safety of holding dollars in cash,” said Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo.

“There are still a lot of investors who need to sell riskier assets, and they want to hold their money in dollars.”

Against the yen, the U.S. currency bounced between gains and losses but last traded down 0.6% at 110.07.

The dollar initially rose against the euro to the strongest since April 2017 but then pared gains to trade 0.4% lower at $1.0742 per euro.

The common currency got a lift after European Central Bank Governing Council member Ignazio Visco said policymakers stand ready to take further steps if needed in response to the virus, which has paralysed Italy’s economy.

The ECB stunned investors last week by launching 750 billion euro emergency bond purchase scheme.

The greenback erased gains and fell 0.3% against the pound to $1.1694, pulling back from the strongest since at least 1985.

U.S. political uncertainty added to the tense mood in Asia.

Partisan battles in the Senate stopped a $1 trillion-plus coronavirus response bill from advancing on Sunday, but talks continued over Democrats’ demands for more funding for medical care and state and local efforts to combat the pandemic.

The bill is Congress’ third effort to blunt the economic toll of a disease that has killed at least 420 people in the United States and sickened more than 33,000.

Nearly one in three Americans was ordered to stay home on Sunday to slow the spread of the disease, while Italy banned internal travel as deaths there reached 5,476.

U.S. President Donald Trump has approved disaster deceleration requests from New York and Washington, while St. Louis Federal Reserve President James Bullard warned unemployment could reach 30% unless more was done fiscally.

Elsewhere, the dollar extended gains.

It closed in on multi-year highs against the Australian and New Zealand dollars as the economic costs of self-isolation triggered the largest intraday decline ever in New Zealand shares.

Investors have been liquidating positions in safe-havens and other riskier investments to keep their money in dollars due to the uncertainty caused by the epidemic.

Major central banks have ramped up efforts to ease a global dollar funding crunch, but the U.S. currency remains in demand due to the high degree of uncertainty about the unknown flu-like virus.

Investors have to pay 86 basis points (bps) over interbank rates to swap 3-month yen into dollars, cross-currency basis swap rates showed on Monday. This is less than a 139 bps premium reached on March 19, but swap rates are still above average.

The dollar has also surged against many emerging market currencies, highlighting the growing sense of risk aversion across the globe.

In Asian trading, the dollar rose to a record high against the Mexican peso and the highest since December 2018 against the Thai baht.

So far this year, the dollar is up 26% against Brazil’s real , up around 11% against the Korean won and up 20% against the Indonesian rupiah.

Global markets have been upended in recent weeks as the coronavirus spread from central China and governments have responded with increasingly strict restrictions on travel and daily life, disrupting businesses and prompting consumers to stay at home and rein in spending.

The virus has now been reported in more than 100 countries and has claimed more than 13,000 lives. (Reporting by Stanley White; Editing by Sam Holmes and Christian Schmollinger)

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