The safe-haven yen and Swiss franc struggled for a fourth straight session against the U.S. dollar on Thursday, as investors' tolerance for risk increased, encouraged by the Chinese government's efforts to contain the latest coronavirus and limit the economic fallout.
The Japanese currency dropped to a two-week low versus the dollar, while the franc fell to its weakest level in more than a week. Investors also cheered news that China would cut in half the additional tariffs imposed on 1,717 U.S. goods last year, following the signing of a Phase 1 trade deal.
"A lot of the risk-off moves over the last two weeks are being unwound," said Simon Harvey, FX market analyst at Monex Europe in London.
"We're seeing credible responses from monetary authorities, in China and it looks like it's soothing market fears of a more entrenched slowdown in the Chinese economy," he added.
Chinese President Xi Jinping told Saudi Arabia's King Salman by telephone that China has achieved "positive" results in its prevention and control efforts in fighting the new coronavirus, the country's official Xinhua news agency reported on Thursday The People's Bank of China (PBOC), for its part, has pumped hundreds of billions of dollars into the financial system this week to cushion the potentially adverse economic impact of the virus.
That said, the coronavirus has now claimed 563 lives, with more than 28,000 confirmed infections in China. A Reuters tally also showed that 260 cases have been reported in 31 countries and regions outside mainland China.
In midmorning trading, the dollar rose 0.1% against the yen to 109.92, and slid 0.2% versus the franc to 0.9754 The euro, meanwhile, tumbled to a two-month low against the dollar, weighed down by data showing German industrial orders unexpectedly plunged in December.
That suggested that the euro zone economy would remain sluggish in the opening months of 2020. Contracts for German goods fell 2.1% in December from November, the biggest drop since February. A Reuters poll had forecast a 0.6% rise.
The euro's losses pushed the dollar index up 0.1% to 98.432, which benefited as well from Thursday's solid U.S. economic data. The number of Americans filing for unemployment benefits dropped to a nine-month low last week, falling to 202,000 for the week ended Feb. 1. A separate report showed nonfarm productivity, which measures hourly output per worker, increased at a 1.4% annualized rate last quarter.
"The overall narrative for the U.S. economy is that it's still in a very strong position compared to other developed markets," said Monex's Harvey. The offshore Chinese yuan, meanwhile, was little changed against the greenback, trading at 6.9770 yuan per dollar, after weakening to 7 per dollar on Monday. Broader market volatility fell to new lows, with one-month implied euro-dollar price swings dropping to a record low of 3.7% this week.