FOREX-Yen gains, yuan falters as stocks swoon on fears about China virus

Published 21/01/2020, 03:44
© Reuters.  FOREX-Yen gains, yuan falters as stocks swoon on fears about China virus

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

* Stock market decline pushes up yen

* Some concern about Chinese coronavirus in Wuhan

* Traders await more details from BOJ, ECB on policy tone

By Stanley White

TOKYO, Jan 21 (Reuters) - The yen pulled ahead and the yuan

fell against the dollar on Tuesday as the spread of a

pneumonia-like virus in China sparked a sudden bout of risk

aversion and sent Asian stocks skidding.

The yuan slipped against U.S. currency in onshore and

offshore trade after a Chinese health expert said the virus can

pass from person to person as the fourth death from the illness

was confirmed.

The outbreak of the disease, which has spread from the

central city of Wuhan, is still in its early stages. However, it

comes right before the peak travel season during the Lunar New

Year holidays, raising the risk that it could spread further.

"There was a sharp fall in Hong Kong stock futures that

rippled through the currency market and pushed up the yen," said

Yukio Ishizuki, foreign exchange strategist at Daiwa Securities

in Tokyo.

"I can understand why some people would say the Chinese

virus is the trigger, but it is still too early to be certain."

The yen JPY=EBS edged higher 0.15% to 110.01 per dollar on

Tuesday.

In the onshore market, the yuan CNY=CFXS fell to 6.8916

per dollar, the lowest level in almost a week. In the offshore

market, it CNH=D3 dropped to 6.8886.

The dollar index against a basket of six major currencies

stood at 97.598, near the highest level in a month.

Traders in Japan were also focused on a Bank of Japan

meeting.

At the two-day rate review that ends on Tuesday, the BOJ is

set to keep its short-term interest rate target at minus 0.1%

and a pledge to guide 10-year government bond yields around

zero. The BOJ is also expected to nudge up its growth forecasts as

improved macroeconomic indicators take some pressure off the

central bank for more stimulus, but traders will scrutinise

governor Haruhiko Kuroda's remarks after the policy decision.

Elsewhere in currencies, the Australian dollar AUD=D3 fell

0.18% to $0.6862 as worries about the Chinese virus hurt

currencies sensitive to risk. The New Zealand dollar NZD=D3

also eased 0.11% to $0.6604.

The euro was locked in a narrow range before a European

Central Bank (ECB) meeting on Thursday where it is expected to

launch a comprehensive review of central bank strategy,

including the ECB's inflation target.

Against the dollar, the euro EUR=EBS traded at $1.1096.

The common currency was also quoted at EURGBP=D3 85.34 pence.

The ECB's first meeting of the year is most likely to launch

a rethink of an inflation goal the bank has failed to meet since

2013.

The scope and scale of the review will be a key focus for

markets 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 by

investors on Thursday.

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