US dollar strengthens as traders see resilient economy

London

A STRONGER US dollar dragged the euro down to its lowest level in months as investors expected the US economy to remain resilient to the spread of the coronavirus across the world, with payroll data from last week reinforcing traders' optimism.

Market participants were more positive about riskier currencies amid hints that the spread of the coronavirus could be slowing down and as some big businesses resumed work in China after the Chinese New Year break.

The Australian dollar rose 0.3 percent to 0.6694 per US dollar, pulling away from a decade-low touched earlier in the session. It has lost 4.5 per cent this year. The Chinese yuan also rose 0.3 per cent to 6.9860 per US dollar.

The US dollar, however, was stronger against other major currencies.

It pushed the euro to match a four-month low of US$1.0942 and dragged the pound down to a 2½-month low of US$1.2873, before sterling recovered and traded last at US$1.2911, up 0.2 per cent on the day.

Versus the euro, the pound was 0.2 per cent higher at 84.84 pence .

"The relative attractiveness of the US dollar has been boosted in the near-term by building concerns over the outlook for growth outside of the US, the rising probability of President (Donald) Trump winning a second term and further evidence of the ongoing resilience of the US economy," said Lee Hardman, currency analyst at MUFG.

"However, the Fed's reluctance to tighten policy should help to dampen upside potential for US yields and the US dollar," Mr Hardman said.

According to analysts at Reuters, the probability that euro/US dollar will drop quickly was low, but the probability of it dropping further was high.

The safe-haven yen was trading neutral at 109.75 yen per US dollar, while bonds dipped and stock markets pared some early losses with the broad appetite for risk.

"We've seen positive headlines about a few large companies all reporting that they were going to be resuming and reopening facilities in China," said Richard Franulovich, head of FX strategy at Westpac in Sydney.

Taiwan's Foxconn, a major contractor in global technology production, received approval to resume production at a plant in China's north, one person with knowledge of the matter told Reuters. Carmaker Tesla's Shanghai factory was due resume production on Monday, a government official said last week, adding that authorities will provide assistance to the firm. REUTERS