Dollar holds advantage as coronavirus fears weigh on markets

TOKYO (Reuters) – The dollar held onto gains on Wednesday as a resurgence of the coronavirus in the United States and the return of lockdowns in some countries boosted safe-haven demand for the U.S. currency.

Risk sentiment was also undermined after Federal Reserve officials expressed concern that rising coronavirus cases could harm economic growth just as stimulus measures start to expire.

The yuan fell slightly against the dollar, halting a two-day rally, after the Chinese central bank’s daily midpoint for the currency was set at a weaker than expected level.

Other Asian currencies straddled narrow ranges as a resurgence of coronavirus cases threatened a return of lockdown restrictions, leaving investors fretting about the mounting economic costs of the pandemic.

“The mood changes day by day, but the dollar looks to be supported for now as investors turn more cautious about the virus,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities.

“The Fed’s comments on the economy sound sombre. There’s reason to worry because it is hard to see when the virus will be brought under control.”

The dollar traded at 107.58 yen JPY= on Wednesday following a 0.3% gain on Tuesday.

Against the euro, the dollar was quoted at $1.1278, also holding to a 0.3% gain from the previous session.

The greenback bought 0.9428 Swiss franc CHF=EBS, little changed on the day.

Sterling GBP=D3 changed hands at $1.2554 and was quoted at 89.86 pence per euro EURGBP=D3.

The pound was near three-week highs as traders awaited British finance minister Rishi Sunak’s announcement later on Wednesday of his next moves to prevent a wave of job cuts from damaging an already weakened economy.

Equities weakened and U.S. Treasury yields edged lower as the number of confirmed coronavirus cases in the United States pushed past 3 million on Tuesday, according to a Reuters tally, stoking fears that hospitals will be overwhelmed.

The United States has the highest known numbers of coronavirus cases and deaths in the world.

Adding to the cautious tone, three Fed officials expressed concern that the surge in infections threatens to pinch consumer spending and job gains just as some stimulus programmes are set to expire.

One Fed policymaker pledged more support ahead from the U.S. central bank.

Some traders warn that the dollar could break out of its range against the yen because currency options are set to expire later Wednesday and Thursday.

The onshore yuan CNY=CFXS eased slightly to 7.0200, pulling back from an almost four-month high reached on Tuesday amid speculation the People’s Bank of China is trying to check the currency’s gains.

While China’s industrial output has recovered faster than most other countries, further expansion will be hard to attain without stronger, broad-based demand and a turnaround in exports.[CNY/]

The Australian dollar AUD=D3 was little changed at $0.6939 following a 0.4% decline on Tuesday. Sentiment for the Aussie has taken a hit after coronavirus lockdown measures were reimposed in Australia’s second biggest city of Melbourne on Tuesday.

The New Zealand dollar NZD=D3 was little changed at $0.6545.

Graphic: World FX rates in 2020 here

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