FOREX-Dollar, yen strengthen as Chinese virus toll rises

The U.S. dollar index, the Japanese yen and the Swiss franc rose on Monday morning, while the offshore yuan tumbled to a 2020 low as growing fears about the spread of a coronavirus from China pushed investors into safer assets.

Health authorities around the world are working to prevent a pandemic. The virus has killed 81 people in China, and nearly 2,800 people have been infected globally. Chinese Premier Li Keqiang will «inspect and direct» efforts to control an outbreak in the central city of Wuhan and promised reinforcements, as people accused provincial authorities of being too slow to respond.
While safe-haven assets have strengthened, currency moves were limited. The yen was the main beneficiary, up 0.3% to 108.94, although it remained well below the peak hit on Jan. 8. The dollar index was up 0.07%, last at 97.925. The Swiss franc was up 0.19% to 0.969 per dollar.
«The dollar usually does strengthen as a result of anything that seems like it has the potential for physical chaos,» Juan Perez, senior foreign exchange trader and strategist, Tempus, Inc.
The possibility of a rapid turnaround in the event the virus is contained explains the relatively muted move in the dollar, Perez said.
«We do think the dollar this week, if nothing improves, will continue on this strong run. But of course, anything at any moment can change if the headlines do turn, or if perhaps this is somehow curable then expect markets to turn around and the dollar to lose that safe-haven risk-off momentum.»
The offshore yuan shed as much as 0.9% to 6.99 per dollar , its weakest since Dec. 30.
The yuan has gone into a tailspin since it rallied to a 5-1/2-month high earlier in January. The dollar has gained more than 2% versus the Chinese currency since last Monday.
The Australian dollar, which is exposed to the Chinese economy, dropped 0.88% to $0.677, its lowest since Dec. 2.
Traders said low liquidity could exacerbate market moves. Financial markets in China, Hong Kong, Singapore and Australia are closed for holidays.
The euro fell to a two-month low against the yen of 119.90 yen and was last 0.3% lower on the day to 120.08.
The euro erased its earlier gains against the dollar after the Ifo institute said that German business morale deteriorated unexpectedly in January. The euro was last 0.02% weaker at $1.102.

REUTERS (Reporting by Kate Duguid and Tommy Reggiori Wilkes; Editing by David Gregorio)