* FX markets relatively calm despite equity falls
* Euro recovers after euro zone GDP data
* Yuan jumps vs dollar in offshore market
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
(Adds quotes, updated prices)
By Tommy Wilkes
LONDON, Jan 29 (Reuters) - The dollar's rally fizzled on
Friday and risk-sensitive currencies recovered with an easing of
nerves over a clash between individual investors and
professional short-sellers in the United States, while the yen
dropped sharply.
The moves in FX markets were measured but the earlier buying
of dollars underscored that concerns about the wild swings in
stock prices had worried traders in currency markets.
The big mover of the day was the Japanese yen, which hit a
two-week low versus the dollar and a nearly three-year low
against the Swiss franc. Analysts attributed the move to several
reasons, including the dollar's yield advantage over Japan and
month-end portfolio reshuffling.
The dollar had benefited from safety buying since the start
of the week, when investors fretted that President Joe Biden's
fiscal spending package would not be as large as the proposed
$1.9 trillion.
COVID-19 vaccine rollouts globally have been running into
trouble, too, adding to investor jitters. Production delays have
snowballed into a spat between the European Union and drugmakers
over how best to direct the limited supplies available.
The dollar index -- which measures the dollar against a
basket of currencies -- initially rose but was last down
slightly at 90.526 =USD . It remains up for the week and is
nearly 0.9% higher this month.
Against the yen the dollar rallied as much as 0.6% to 104.94
JPY=EBS , its strongest since Nov. 16.
The yen also weakened sharply versus the Swiss franc
CHFJPY=EBS and the euro EURJPY=EBS .
"It's a very interesting move especially given that at the
same time global equity indices would suggest that risk
sentiment is not improving as much to justify the move," said
Valentin Marinov, head of G10 FX research at Credit Agricole,
referring to the yen's drop versus the dollar.
The Japanese currency typically rises when investors are
nervous, and shares fell heavily on Friday amid the long-short
battle in U.S. stock markets. "It also highlights that the primary driver of that could be
the growing yield advantage of the dollar over low yielding
currencies like the yen, the Swiss franc," Marinov added.
The euro rose 0.1% to $1.2137 EUR=EBS , rebounding after
growth in Germany and Spain and a smaller-than-expected
contraction in France pointed to resilience in the euro zone
economy.
Risk-sensitive currencies like the Australian dollar
AUD=D3 fell but were off their lows of the day. Most
emerging-market currencies dropped.
The Chinese yuan, however, strengthened 0.4% to 6.45 yuan
per dollar in offshore markets CNH=EBS .
The People's Bank of China injected 100 billion yuan into
the financial system on Friday following a week of reducing
liquidity, which had sparked concerns it was in fact tightening
monetary policy. L1N2K404V
Despite the dollar's move higher this month, most analysts
believe it will weaken in 2021 as the new U.S. government
implements massive fiscal spending while the Federal Reserve
maintains its ultra-easy monetary policy.
ING analysts said that "the recent reiteration by the Fed of
its ultra-dovish stance despite an improving outlook leaves the
dollar vulnerable in the medium-term as risk sentiment
stabilizes."
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World FX rates https://tmsnrt.rs/2RBWI5E
U.S. dollar vs Japanese yen https://tmsnrt.rs/3iXBFJ8
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