Euro near seven-week low after ECB; virus fears support yen

By Hideyuki Sano

TOKYO (Reuters) – The euro hovered near a seven-week low against the dollar on Friday after the European Central Bank was seen as more dovish than expected, while anxiety over China’s coronavirus outbreak propped up the safe-haven yen.

The euro stood at $1.1055 , touching a seven-week low of $1.1036 hit in U.S. trade on Thursday after the ECB held interest rates steady and launched a broad review of its policy.

ECB President Christine Lagarde on Thursday sought to redefine the ECB’s main goal and how to achieve it, as years of the central bank’s experiment with negative interest rates and quantitative easing have failed to deliver targeted inflation levels.

Lagarde told a news conference that risks to growth in the euro zone remained tilted to the downside and traders took her overall tone as dovish.

Purchasing Managers’ Index (PMI) data from Germany and the euro zone due later on Friday is the next focus for the currency.

The common currency was also undermined by the coronavirus threat in China because some countries in the currency bloc, notably Germany, have big trade exposures to the Asian economic giant.

Concerns about the new disease bolstered the yen, which traded at 109.55 yen to the dollar , having risen to a two-week high of 109.26 on Thursday.

The World Health Organisation (WHO) said on Thursday it was “a bit too early” to declare the new coronavirus a global health emergency, providing financial markets with some relief.

Yet many investors were anxious as China took the unprecedented measure of closing transportation networks in Wuhan, putting millions of people in lockdown.

“The Lunar New Year holiday in China has just begun and they say the virus could be latent for about a week. So at least for the next couple of weeks it will be difficult to gauge how much the new disease will have spread during the holiday,” said Shinichiro Kadota, senior FX strategist at Barclays.

“That suggests the yen is likely to have a strengthening bias during this period,” he added.

The Australian dollar fetched $0.68415 , having erased all of the gains made after a firm payrolls figure the previous day, and was on track for a fourth consecutive week of losses.

On top of worries about the damage from coronavirus, the currency has been dogged by concerns over the fallout from bushfires that have been ravaging the country for weeks.

Elsewhere, sterling traded at $1.3123 , little changed on the day but up 0.9% so far this week as solid UK economic data prompted traders to wind back expectations of a rate cut by the Bank of England at its policy meeting next week.

The country’s PMI data, due at 9:30 a.m. local time (0930GMT) on Friday, is now being closely watched for clues on the BoE’s move at its policy decision on Jan. 30.

(Reporting by Hideyuki Sano; editing by Richard Pullin)