USD holds gains as investors assess virus' damage

London

THE US dollar held near two-month highs on Wednesday and other currencies seen as safe havens stabilised as investors regained their composure after an outbreak of coronavirus in China, awaiting more news on possible economic damage.

The US dollar's strong showing this week, helped by the relatively positive performance of the US economy, has underlined its safe-haven credentials.

The dollar index increased 0.1 per cent to 98.091, while the euro was down 0.2 per cent versus the US currency at US$1.1001, not far from its Tuesday low, which was its weakest since early Nov 29.

The greenback is now up 1.8 per cent against a basket of major currencies so far in 2020, ahead of a Federal Reserve meeting later on Wednesday.

The Fed is not expected to change interest rates when it gives its decision at 3 am Thursday, Singapore time, but investors will want to hear whether chairman Jerome Powell retains his cautiously upbeat language.

ING analysts said that with the market already pricing in another 25 basis-point rate cut from the Fed in 2020, the US dollar looks like it would hold recent gains.

"With dovish pricing already in place, the bar for a dollar decline vs low-yielding currencies such as JPY or EUR remains high," they wrote in a research note.

The yen, which jumped earlier this week as investors bought into a currency considered a safe store of value in times of stress, traded up 0.1 per cent at 109.06 yen per dollar.

The Swiss franc rallied 0.1 per cent to 1.0720 francs per euro , some way off Tuesday's nearly three-year high of 1.0666.

"The dollar is the outperformer and illustrates in an impressive manner which is the ultimate safe haven in the FX universe - whether that is justified or not," Commerzbank analyst Antje Praefcke said.

While there was evidence that investors were becoming more relaxed about the likely economic impact of the newly identified virus, especially in China, concern remained elevated.

The offshore yuan - heavily sold in recent days - initially rose but by 7.45pm Wednesday, Singapore time, stood at 6.9635 per dollar, unchanged on the day.

On Monday, it had fallen to 6.9900 yuan per dollar, its weakest in almost a month.

Sterling fell 0.1 per cent to US$1.3012 ahead of a Bank of England meeting on Thursday. Investors are divided as to whether it will cut rates. REUTERS