Yen jumps, yuan sags on Wuhan virus fears

London

THE Japanese yen strengthened and China's yuan fell to a two-week low on Thursday, as investors grew more anxious about the spread of a virus in China, while the euro was calm ahead of the European Central Bank (ECB) meeting.

Elsewhere, Australia's dollar rose half a per cent after a surprise drop in the country's unemployment rate.

Deaths from the flu-like coronavirus stand at 17. Almost 600 people are infected and China has locked down Wuhan, a city of 11 million people, where the outbreak was believed to have originated at an animal market.

The moves up in the safe-haven yen and down in the yuan were measured, suggesting investors were not yet panicking about the virus.

The yen rallied 0.3 per cent to 109.57 after earlier reaching 109.50 yen per dollar, its strongest since Jan 13.

The dollar gained 0.3 per cent versus the offshore Chinese yuan to 6.9351 yuan, which has now lost more than 1 per cent of its value since its six-month highs touched on Monday.

Hao Zhou, an economist at Commerzbank, said the worry was that the virus would hurt China's domestic demand.

"To cope with this risk, monetary policy could illustrate further easing bias. For the FX market, risk-off mode is likely to dominate for the time being," he said.

Euro/dollar, trading at US$1.1089, was little changed before the ECB meeting, as was the dollar against basket of currencies.

The ECB introduced a stimulus programme in September. Data since then has suggested some improvement in the euro zone's economy, so analysts doubt ECB boss Christine Lagarde will announce much on Thursday.

Investors will focus on her answers to questions about the ECB's strategic review, which could see changes to its inflation target.

In a note, ING analysts said: "The ECB meeting will, in our view, have limited implications for EUR/USD. The two key points in the Bank's message should be, in our view, that data suggests a pick-up in inflation, and the manufacturing cycle has bottomed out."

The ECB rate decision is due at 8.45am. Its press conference starts later, at 9.30am.

Sterling consolidated at around US$1.3040 after gaining on Wednesday on dwindling expectations that the Bank of England will cut interest rates next week. REUTERS