Yuan tumbles, yen rallies as spread of China virus unnerves markets
China’s yuan tumbled on Tuesday, pulling away from six-month highs against the dollar, while the yen rallied as the spread of a pneumonia-like virus in China sparked a sudden bout of risk aversion and rattled world markets.
China reported a fourth death from a new coronavirus as the number of cases continued to rise, just as hundreds of millions of Chinese prepared to travel for the Lunar New Year holiday.
Global stocks fell as the outbreak rekindled memories of the Severe Acute Respiratory Syndrome (SARS) in 2002/2003, another coronavirus which broke out in China and killed nearly 800 people in a global pandemic.
“You’ve got a stronger yen, a stronger Swiss franc and risk aversion is setting in across everything,” said Kit Juckes, an analyst at Societe Generale.
“It would be very surprising if it was a trend-changer in terms of where things go from here, but it is early days.”
In currency markets, the yuan bore the brunt of the jitters, tumbling almost 0.7% in offshore trading to 6.9126 per dollar
The moves rippled across Asia to currencies linked to Chinese trade and tourism, with the Australian dollar
The New Zealand dollar
In contrast, the yen
The Swiss franc too firmed a touch at 0.96800 to the dollar
The dollar index, which measures the greenback’s value against a basket of six currencies, was steady at 97.602 — near the highest level in a month.
The euro and sterling softened against the dollar
Europe’s single currency traded at $1.10875. It was locked in a narrow range before Thursday’s European Central Bank (ECB) meeting that is expected to launch a comprehensive review of central bank strategy, including the ECB’s inflation target.
The scope and scale of the review will be a key focus, given the far-reaching implications for monetary policy.
A slightly brighter tone to data means the ECB’s assessment of the economic outlook will also be watched closely.
Earlier on Tuesday, the Bank of Japan kept its short-term interest rate target at minus 0.1% and its pledge to guide 10-year government bond yields around zero.
Source: Reuters (By Dhara Ranasinghe)