Euro falls to 33-month low vs Swiss franc on China virus fears

London

THE euro fell to a 33-month low against the Swiss franc on Tuesday as concerns about the economic fallout from the coronavirus outbreak in China sent investors scurrying to the relative shelter of perceived currency market safe-havens.

Though global markets stabilised somewhat after Monday's selloff, there was a strong undercurrent of risk aversion in currency markets with the Australian dollar leading losers and the US dollar strengthening to an eight-week high against its rivals.

"Uncertainty on the virus news front is the name of the game in the markets and markets don't like uncertainty," said Lee Hardman, a currency strategist at MUFG in London.

The euro/Swiss franc cross, a pair highly correlated to risk sentiment fell 0.1 per cent to 1.0666 francs per euro, its lowest since April 2017.

It has already fallen 1.6 per cent so far in January and is on track for its biggest monthly drop since April 2019. Global stocks and oil prices have tumbled in recent days on fears that the virus could do further damage to China's already weakened economy, an engine of global growth.

But larger moves were subdued, with the US dollar comfortably holding on to its previous gains ahead of the start of a two-day US Federal Reserve meeting later on Tuesday, with policymakers largely expected to reiterate that interest rates will remain on hold this year.

"The market is taking a step back from the selloff earlier due to the virus concerns though the dollar is unlikely to weaken substantially as there is safe-haven demand for the greenback," said Morten Lund, a senior FX strategist at Nordea.

Against a basket of other currencies, the dollar rose 0.1 per cent to 98.01, its highest level since early December and taking its gains so far this month to 1.7 per cent.

The Australian and New Zealand dollars led the losers against the greenback, falling 0.2 per cent and 0.1 per cent respectively, although both were off early lows.

Investors' attention was firmly focused on the Chinese currency in the offshore market with mainland markets shut for holidays this week.

The Chinese currency erased earlier gains and was broadly flat at 6.9860 yuan per dollar.

Stability in the offshore yuan after a recent drop provided some calm to nervous currency markets.

The offshore yuan has weakened more than 2 per cent in less than a week against the US dollar. Elsewhere, the Japanese yen held steady at 108.97 per dollar, close to its strongest level since Jan 8.

Japan's currency has risen against the greenback for the last five trading sessions due to the growing risk aversion.

The Norwegian kroner was another significant laggard , weakening 0.3 per cent versus the dollar as falling oil prices and rising political uncertainty further dented sentiment. REUTERS