US dollar shines against euro, riskier peers as virus hit widens

[SINGAPORE] The dollar stood tall over the languishing euro and heavily sold exporter currencies on Wednesday, as investors reckoned with a deepening economic fallout from the coronavirus.

The new coronavirus has caused 2,004 deaths in China and infected more than 74,000 people, while measures to contain it have paralysed the economy and the supply chains it feeds.

Apple Inc has warned it will probably miss its March quarter sales guidance amid disrupted production and shopping habits. Carmakers are idling plants for lack of parts.

The yield curve between US three-month bills and 10-year notes inverted overnight, a bearish economic signal, and German investor confidence slumped as its economy stagnates, sending the euro cheaper than US$1.08 for the first time since 2017.

"The market is trying to model itself on coronavirus and it's struggling really hard to understand how that goes and that's pushing capital into the US," said Chris Weston, head of research at Melbourne brokerage Pepperstone.

"The US remains that least-dirty T-shirt, the best house in a fairly shabby-looking neighbourhood. As a destination for capital, it's still the light that you look for."

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Against a basket of currencies, the greenback is sitting by a four-month high at 99.452. It touched a one-week high against the Australian and New Zealand dollars overnight.

Both Antipodean currencies are heavily exposed to China, and both have lost roughly 5 per cent against the dollar this year. Norway's krone, sensitive to the global growth outlook via oil exports, has shed 6 per cent in 2020 and slumped to an 18-year low overnight.

The euro has fallen 3.7 per cent amid increasing signs of divergence between the European and US economies.

The single currency last bought US$1.0796. Moves in major currencies were slight in morning trade.

China says figures indicating a slowdown in new cases in recent days show the aggressive steps it has taken to curb travel and commerce are slowing the spread of the disease beyond central Hubei province and its capital, Wuhan.

That has not stopped worries mounting, with hedge funds turning to proxies from railway movements to port activity and air pollution to try and gauge how much production remains offline.

Gold is sitting above US$1,600 an ounce for the first time since US-Iran tensions in the Middle East sent it spiking in early January. Priced in euros, gold's value jumped almost 2 per cent to a record high overnight.

Investors are looking to the minutes from the Federal Reserve's January meeting, due to be released at 1900 GMT, for insight into the Fed's thinking about virus risks.

European purchasing managers index numbers and part-month Korean export figures, both due on Friday, are also going to be closely watched for the first hard signs of economic impact.

"We assess the risks are firmly skewed towards the negative effects of Covid-19 lasting longer," Nomura analysts wrote in a note, using the World Health Organization's designation for the illness caused by the coronavirus.

"Therefore, we maintain our cautious view through positions in long USD/THB, long USD/CNH, long USD vs GBP, NZD and long AUD/NZD."

China's yuan was last steady at 7.0017 per dollar in offshore trade.

REUTERS