Dollar drops after Fed launches new loan program, curbing safety bids

NEW YORK (Reuters) - The dollar dropped broadly on Thursday after the Federal Reserve rolled out a $2.3 trillion effort to bolster local governments and small and mid-sized businesses in its latest move to keep the U.S. economy intact as the country battles the coronavirus pandemic.

FILE PHOTO: U.S. dollar notes are seen in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic

The central bank’s announcement came as data showed the number of Americans seeking unemployment benefits topped 6 million for a second straight week, with businesses closed across the country in an attempt to stem the spread of the virus.

“The Fed’s bold efforts helped to offset more horrific news on the job market. I would say that the Fed’s forceful action today underscores the unlimited firepower that the central bank wields and that’s going some way into sustaining the calm that’s descended on markets this week,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The Federal Reserve will continue to use all the tools at its disposal until the U.S. economy begins to rebound fully from the harm caused by the novel coronavirus outbreak, Fed Chair Jerome Powell said on Thursday, even as he acknowledged the limits of the central bank’s powers.

The dollar index measuring the greenback against a basket of currencies =USD was last down 0.54% at 99.58.

Stocks have gained this week on optimism that the coronavirus outbreak may be close to reaching a peak in regions that have been hit hard economically, reducing demand for the safe-haven dollar.

Riskier currencies, including the Australian dollar AUD=, continued to outperform on Thursday. The Australian dollar gained 1.75% to $0.6335, the highest in almost a month.

The dollar dipped 0.37% against the Japanese yen, to 108.41 yen JPY=. The euro EUR= gained 0.60% to $1.0921.

Prospects for a European Union deal on a package to support its coronavirus-battered economies brightened on Thursday as Germany put its foot down to end opposition from the Netherlands and to reassure Italy that the EU would show it solidarity.

The Canadian dollar and Norwegian crown gave back most of their earlier gains as oil prices slumped. Investors reacted negatively to the emerging supply-cut agreement between members of OPEC and its allies in response to the global fuel demand collapse due to the coronavirus pandemic.

The loonie CAD was last at C$1.4003 against the greenback, after earlier gaining to C$1.3931. The crown NOK= was 10.24 per dollar, after earlier reaching 10.14 per dollar.

U.S. markets are closed on Friday for the Good Friday holiday.

Reporting by Karen Brettell; Editing by Dan Grebler and Leslie Adler