May 1, 2020 / 11:07 AM / a month ago

FOREX-Chinese yuan falls on U.S. tariff threat, Australian dollar sinks

* Yuan set for biggest daily drop since March 25

* Euro relatively stable, sterling gives back gains

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Updates prices, adds comment)

By Olga Cotaga

LONDON, May 1 (Reuters) - The Chinese yuan fell to a one-month low versus the dollar on Friday, a day after U.S President Donald Trump accused China of mishandling the outbreak of the novel coronavirus and threatened new tariffs on Beijing.

Trump said on Thursday he believed the virus may have originated in a virology lab in Wuhan, the Chinese city where the outbreak began.

The Chinese state-backed Wuhan Institute of Virology has dismissed the allegations, and other U.S. officials have downplayed their likelihood.

The Chinese yuan fell in the offshore market by 0.6% to 7.1240, having earlier declined to 7.1350 versus the U.S. currency, its lowest since April 2. The yuan was on track for its biggest daily drop since March 25.

“Given the scale of the COVID-19 impact there is certainly a high risk of geopolitical tensions escalating considerably as lockdowns reverse,” said Derek Halpenny, head of research at MUFG.

“This would clearly be another hit to global trade that would add a layer of dollar support going forward,” Halpenny said.

The Australian dollar fell by 0.9% to 0.6451, having sunk earlier to 0.6438, its weakest since Tuesday.

The Canadian dollar also fell by 0.6% to 1.4024 against the greenback.

Analysts attributed the moves to poor equity performance in the United States.

“The late-day fall in the S&P 500 diminished the market’s gains for the month and turned April from the best month since October 1974 to the best month since January 1987,” said Marshall Gittler, a forex analyst at broker BDSwiss.

The euro stabilised against the U.S. dollar, having rallied the day before to a two-week high on month-end flows and news that the European Central Bank will make loans to banks even cheaper.

It was last up 0.2% at $1.0979.

Much of Europe and Asia was closed on Friday for International Workers’ Day, but a new month brings a new set of worries to investors as coronavirus infections rise to 3.3 million globally, claiming more than 230,000 lives.

The U.S. dollar was down 0.4% against the Japanese yen at 106.76 yen.

Deutsche Bank currency strategist George Saravelos said the fact that the United States could impose capital controls on China would be dollar-negative as that would imply outflows from greenback-denominated assets.

“If the move is politically driven it would be a clear dollar negative in our view. It would lead to a shift in reserve holdings out of the USD into EUR, JPY, GBP, gold and other reserve proxies,” Saravelos said.

Elsewhere, sterling gave up some of the previous day’s gains, trading down 0.3% against the dollar at $1.2554 and by 0.6% against the euro at 87.51 pence.

Reporting by Olga Cotaga; Editing by Raissa Kasolowsky and Jan Harvey

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