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The rising death toll from a virus spreading in China sent investors scurrying to the shelter of the Japanese yen and the Swiss franc while China's yuan tumbled to a one-month low.
The Chinese yuan in the offshore market, widely considered as a barometer of risk sentiment towards Chinese assets as mainland and Hong Kong markets are shut, tumbled to a one-month low below the psychological 7 yuan per dollar level in early London trading, its lowest level since late December.
Risk aversion also knocked the Aussie and the Kiwi dollar lower while the Japanese yen and the Swiss franc strengthened.
As the new pneumonia-like disease spread quickly in China, the dollar is emerging as an ultimate safe-haven destination, with its high interest rates relative to the rest of its developed market peers also boosting its appeal.
The dollar is the best performing currency among G10 currencies in January, with the dollar index rising 1.6% so far this month to hit a two-month high.
“The U.S. dollar and the yen have been the safe havens of choice as the virus spreads and we expect these safe havens will remain well supported in the next few weeks,” Colin Asher, a senior economist at Mizuho Bank in London, said.
The dollar index last stood at 98.04, flat on the day but not far from Wednesday's two-month high of 98.19.
The yen firmed 0.1 per cent to 108.90 yen per dollar JPY=, edging close to a three-week high of 108.73 touched last week.
The Japanese currency has fallen 0.3 per cent against the dollar so far this month but risen against most others, adding 1.6 per cent versus the euro and 3.9 per cent on the Australian dollar
Elsewhere, the British pound slipped 0.25 per cent lower at $1.2983 before a Bank of England policy decision later in the day where markets are still assigning a chunky 53 per cent probability of a rate cut.
Among the biggest losers this month is the Aussie which has lost 3.9 per cent so far this month, the second worst performing currency in the G10, behind only a 4.3 per cent fall in the Norwegian crown, which has been hit by falls in oil prices.
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