January 30, 2020 / 12:52 AM / 18 days ago

FOREX-China virus anxiety underpins safe-haven currencies

* Dollar, yen, Swiss franc in demand as safe-havens

* Aussie flirts with 3-1/2-month low, euro near 2-month low

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

By Hideyuki Sano

TOKYO, Jan 30 (Reuters) - The dollar held near a two-month high against a basket of major currencies while the Australian dollar and the yuan were under pressure on Thursday as investors tried to shield themselves from assets that could be hit by China’s virus epidemic.

The U.S. Federal Reserve, while keeping interest rates on hold as expected on Wednesday, also cited the virus as a source of uncertainty for the economic outlook.

As the new pneumonia-like disease spread quickly in China and many of its trade partners in Asia and Europe, the dollar is emerging as an ultimate safe-haven destination.

The dollar is the best performing currency among G10 currencies so far this month, with the dollar index rising 1.6% in January to hit a two-month high.

It last stood at 98.033, flat on the day but not far from Wednesday’s two-month high of 98.037.

The yen and the Swiss franc, traditional safe-haven currencies, ranked a close second and third.

The yen traded at 109.06 yen per dollar, having gained 0.14% the previous day. The Japanese currency was down 0.3% against the dollar so far this month.

The Swiss franc changed hands at 0.9729 franc per dollar.

“The overall market is neither clear-cut risk-on nor risk-off. But in the currency market, the dollar, the yen and the Swiss franc are clearly favoured now,” said Minori Uchida, chief currency analyst at MUFG Bank.

“While it is highly uncertain how much the disease will spread and how hard it will hit the economy, downgrades to the Chinese economy looks inevitable.”

China’s economic growth may drop to 5% or even lower due to the coronavirus outbreak, possibly pushing policymakers into introduce more stimulus measures, a government economist said in remarks published on Wednesday.

That would deal a severe blow to other economies that rely heavily to Chinese demand.

The Australian dollar fetched $0.6751, having hit a 3-1/2-month low of $0.67355 in the previous session.

The euro stood at $1.1009, having touched a two-month low of $1.0992 in U.S. trade on Wednesday.

The offshore yuan steadied for now, trading at 6.9730 yuan per dollar, above the one-month low of 6.9900 touched on Monday.

Elsewhere, sterling traded unchanged at $1.3016 ahead of the Bank of England’s policy decision later in the day.

Though expectations of a rate cut have substantially dropped after some robust data last week, they still remain almost 50%, suggesting the rate decision is likely to move the pound whichever way the BoE will go.

The European Parliament gave final approval to Britain’s divorce from the European Union on Wednesday, paving the way for the country to quit the bloc on Friday after nearly half a century and delivering a major setback for European integration. (Reporting by Hideyuki Sano; Editing by Lincoln Feast.)

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