Yen holds gains on virus woes, euro crumbles on weak growth outlook

The yen traded a tad higher at 109.79 per dollar today in Asia, on course for its second day of gains. — Reuters pic
The yen traded a tad higher at 109.79 per dollar today in Asia, on course for its second day of gains. — Reuters pic

TOKYO, Feb 14 — The Japanese yen held onto gains against the dollar today as renewed worries about the coronavirus outbreak supported demand for safe-haven currencies and weighed on prices of riskier assets.

The Chinese yuan nursed losses in offshore trade as the flu-like virus, which emerged late last year in China’s Hubei province, slammed the brakes on consumer spending and manufacturing.

The euro languished at multi-year lows versus the dollar and the Swiss franc as investors grow more pessimistic about the outlook in the euro zone before the release of gross domestic product data later today.

In contrast, the pound rode a wave of optimism into Asia today due to hopes that a British cabinet reshuffle will lead to more expansionary fiscal policy to support growth.

Officials in Hubei stunned financial markets yesterday by announcing a sharp increase in new infections and deaths from the coronavirus, reflecting the adoption of a new method to diagnose the illness.

Uncertainty about the scale of epidemic is likely to discourage investors from taking on excessive risk until there is sufficient evidence that its spread has slowed.

“There is a return of risk aversion, so yen and other safe-haven assets have risen, but reaction so far has been temporary and limited,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“The change of reporting standards in china is a concern. There is a fear that China is still hiding something.”

The yen traded a tad higher at 109.79 per dollar today in Asia, on course for its second day of gains.

In the offshore market, the yuan was quoted at 6.9910, following a 0.2 per cent decline yesterday.

Hubei officials today reported 4,823 new cases and 116 new deaths as of February 13, but investors were still reeling after Hubei reported 14,840 new cases and a record daily increase in deaths yesterday, using new diagnostic methods to reclassify a backlog of cases.

China’s economy will grow at its slowest rate since the financial crisis in the current quarter, according to a Reuters poll of economists who said the downturn will be short-lived if the outbreak is contained.

The coronavirus was first detected in the Chinese city of Wuhan, a nerve centre in the global supply chain. It has so far claimed more than 1,300 lives in China and spread to 24 other countries.

The euro fell 0.1 per cent to US$1.0827, the lowest since April 2017, as investors braced for the release of GDP data from Germany and the euro zone later today.

The single currency was quoted at 1.0614 Swiss francs, close to the lowest since August 2015. The euro eased slightly to 83.06 pence, close to the weakest since December.

Sentiment for the euro worsened after data earlier this weak showing a plunge in euro zone manufacturing output reinforced expectations that monetary policy will remain accommodative.

The pound was little changed at US$1.3046 following a 0.64 per cent gain yesterday due to expectations that British Prime Minister Boris Johnson’s appointment of a new finance minister will lead to more fiscal spending to help Britain weather its transition away from the European Union. — Reuters

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