Dollar up for a 3rd day but yen firm on China virus fears

• The yen remained supported, with the Japanese currency rising 0.2pc to 109.30 against the dollar.
• The Chinese currency in the offshore market edged 0.2pc lower against the dollar and remained supported around the 7 yuan per dollar level.
• The dollar weakened last week as news of the spreading China virus hit risk sentiment globally.

LONDON: The dollar climbed towards a recent two-month high on Wednesday on the back of firmer Asian markets and expectations Beijing will manage to limit the spread of a deadly virus, though the yen's strength indicated broader sentiment remained cautious.

Against a basket of its rivals, the dollar rose 0.1pc to 98.02, advancing for a third consecutive day, and within striking distance of a two-month high of 98.19 hit last week.

Its gains were most prominent against the Norwegian crown , which failed to draw any support from firmer oil prices. Norway is a major exporter of oil.

"FX markets are slightly optimistic as the infection rate from the deadly China virus seems to have slowed somewhat but still remains high at double digit rates," said Thu Lan Nguyen, a FX strategist at Commerzbank based in Frankfurt.

Though the dollar has veered between acting as a classic safe-haven asset during times of trade-war tensions and benefitting from its status as a high-yielding currency in the developed market space in 2019, the opening days of 2020, have seen the greenback's correlation with risky assets strengthening considerably.

As a result, the dollar weakened last week as news of the spreading China virus hit risk sentiment globally, with only stocks and risky assets gaining this week as China's response to the coronavirus outbreak raised hopes it could be contained, even as the death toll rose sharply.

With more than 99pc of confirmed cases confined to China, drastic quarantine measures in place and the central bank pouring trillions of yuan into the financial system, investors have partially unwound their recent flight to safety.

Still, the yen remained supported, with the Japanese currency rising 0.2pc to 109.30 against the dollar, unwinding some of its hefty losses sustained against the dollar in the previous session.

The Australian dollar bounced from a four-month trough of $0.6679 to $0.6737, with hawkish comments from the central bank chief offering extra support

However, a slightly weaker yuan and a collapse in the Singapore dollar, after hints at virus-driven policy easing, show that an abundance of caution remains.

The Chinese currency in the offshore market edged 0.2pc lower against the dollar and remained supported around the 7 yuan per dollar level.