* Yen bounces having been set for worst week in 2-1/2 years
* AUD languishing at 11-year low, kiwi sold
* Euro gets respite after better than expected PMI data
* Emerging market hazard lights flashing
* World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Marc Jones
LONDON, Feb 21 (Reuters) - Japan's yen bounced sharply in
early European trading on Friday, as traders swooped back into
the currency after its worst four-day run in over two years.
The Japanese currency had lost 2% against the dollar in the
previous two days alone as worries about the impact of the
coronavirus on Asia had spread, but its early burst in London
left it up 0.5% on the day at 111.5 yen. JPY= "Traditionally, the support for the yen comes from two
sources, general risk-off sentiment and a move to safe-haven
bonds," said Saxo Bank's head of FX strategy John Hardy.
The week's dramatic slide, though, has raised more
fundamental questions about the yen's reputation as a safe
harbour when FX markets get stormy.
"The question is whether recent dollar/yen spike higher
could be a one-off move triggered by order flows and algorithm
trading or whether it is something else. This is a very
interesting test of whether we are seeing regime change."
Manufacturing activity in Japan suffered its steepest
contraction in seven years this month, highlighting the widening
global fallout from the virus outbreak in China, a private
business survey showed on Friday. The other side of the move has been a huge charge from the
dollar, which has had its strongest start to a year since 2015.
It was down 0.2% against the major currencies USD= by 0915
GMT but that came after the closely-tracked dollar index .DXY
had touched a three-year peak overnight.
The euro has been shoved down to a near three-year low
EUR= , Australia's dollar AUD=D3 traded at an 11-year low of
$0.66 overnight and China's tightly-managed yuan CNY= was
sitting at a two-month low of 7.0286 per dollar. CNY/
The tourism-exposed Thai baht THB= has dropped 5.5% this
week while the Korean won KRW= and Singapore dollar SGD=
have shed more than 4%. Mexico's peso has been ripped down 2.5%
too having been holding up relatively well recently. EMRG/FRX
"New cases in (South) Korea and in Japan, (have) obviously
given some people a little bit of cold feet regarding Japan and
the yen as a safe haven," said David Bloom, global head of FX at
HSBC.
"They're thinking: 'Maybe Swissy and gold are better'. So
there is a little bit of scratching of heads, there's no doubt
about it," he said, adding he was not yet prepared to abandon
the idea of the yen as a safety play.
The day's other focus for Europe was a blizzard of
purchasing managing index data which due to their forward
looking nature are seen as one of the better indications of
current economic conditions.
The euro saw a modest rise to $1.0817 to the dollar after
IHS Markit's Euro Zone Composite Flash PMI rose to 51.6 in
February beating all forecasts in a Reuters poll which had a
median prediction of 51.0. Anything above 50 indicates growth.
"The euro zone economy managed to pick up some momentum
again in February despite many companies having been disrupted
in various ways by the coronavirus, which caused supply
problems," said Chris Williamson, chief business economist at
IHS Markit.