January 28, 2020 / 1:04 PM / a month ago

FOREX-Dollar, Swiss franc, yen in demand on China virus uncertainty

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Releads, updates prices)

By Saikat Chatterjee

LONDON, Jan 28 (Reuters) - Concerns about the economic fallout from the coronavirus outbreak in China supported safe-haven currencies on Tuesday, with the dollar index approaching a two-month high and the Swiss franc holding near the highest in almost three years.

Though global markets stabilised somewhat after Monday’s selloff, there was risk aversion in currency markets, with the Australian dollar leading losers and the dollar strengthening to an 8-week high against its rivals.

“Uncertainty on the virus news front is the name of the game in the markets and markets don’t like uncertainty,” said Lee Hardman, a currency strategist at MUFG in London.

The euro/Swiss franc cross, a pair highly correlated to risk sentiment, touched 1.0666 francs per euro, the lowest since April 2017, before recovering to 1.0690.

It has fallen 1.6% so far in January and is on track for its biggest monthly drop since April 2019.

Global stock markets and oil prices have tumbled in recent days on fears the virus could further damage China’s already weakened economy, an engine of world growth. That also briefly inverted the U.S. Treasury yield curve, considered a fairly reliable recession predictor.

But larger moves were subdued, with the U.S. dollar adding to previous gains ahead of the start of a two-day U.S. Federal Reserve meeting later on Tuesday.

Against a basket of currencies, the dollar rose 0.1% to 98.01, its highest since early December and taking its gains so far this month to 1.7%. It remains unfazed by signs that money markets are pricing a U.S. Federal Reserve interest-rate cut later this year and possibly even a second.

Versus the euro, it firmed 0.14% to an eight-week high of $1.100

Fed policymakers are largely expected to reiterate that interest rates will remain on hold this year.

“The market is taking a step back from the selloff earlier due to the virus concerns though the dollar is unlikely to weaken substantially as there is safe-haven demand for the greenback,” said Morten Lund, a senior FX strategist at Nordea.

The Australian and New Zealand dollars, both highly geared to China, shed 0.2% and 0.1% respectively.

Stability in the offshore yuan, after a recent drop, provided some calm to nervous currency markets. The Chinese currency firmed 0.2% versus the dollar, rising off three-week lows. At a time when mainland markets are shut, the offshore yuan has weakened more than 2% in less than a week.

Elsewhere, the yen held steady at 108.97 per dollar, close to its strongest level since Jan. 8.

Japan’s currency has risen against the greenback for the last five trading sessions due to growing risk aversion.

The Norwegian crown was another laggard, weakening 0.3% versus the dollar to six-week lows, dented by six days of falling oil prices.

Reporting by Saikat Chatterjee; Editing by Angus MacSwan, Kirsten Donovan and Bernadette Baum

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