FOREX-Euro near 7-week low after ECB; China virus worries linger

* Euro soft as Lagarde drops no hint of policy normalisation
* Aussie, yuan under pressure on China pandemic fears, yen
firm
* Sterling eyes PMI ahead of BoE policy decision next week
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, Jan 24 (Reuters) - The euro hovered near a seven-week
low against the dollar on Friday after the European Central Bank
was seen as more cautious than expected, while anxiety over
China's coronavirus outbreak propped up the safe-haven yen.
The euro changed hands at $1.1055 EUR= , having touched a
seven-week low of $1.1036 on Thursday. The currency flirted with
five-week low against the British pound EURGBP=D4 and 33-month
low against the Swiss franc EURCHF= .
The ECB launched a broad review of its policy, seeking to
redefine its 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.
ECB President Christine 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.
"Some people were hoping that Lagarde could talk about the
possibility of policy normalisation after Riksbank ended
negative interest rates late last year. But there was absolutely
no such indication from her," said Kazushige Kaida, head of
foreign exchange at State Street Bank.
Riksbank, the central bank of Sweden, ended five years of
negative interest rates last month, despite a slowdown in the
Swedish economy, a decision which many investors thought was
made to allay concerns about side-effects such as housing bubble
damages to pension funds. 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 bloc, notably
Germany, have big trade exposures to the Asian economic giant.
Concerns about the spread of the new disease bolstered the
yen, which traded at 109.45 yen to the dollar JPY= , 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 virus a global health
emergency, providing financial markets with some relief.

Yet many investors were anxious as the epidemic spreads
within China, killing 25 people in China and infecting more than
800. "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," said Shinichiro Kadota,
senior FX strategist at Barclays.
"That suggests the yen is likely to have a strengthening
bias during this period," he added.
Chinese financial markets will be closed through Thursday.
Many other markets in the region will be shut on Monday.
The offshore yuan was little changed at 6.9275 per dollar
CNH=D4 , after touching a two-week low of 6.9423 on Thursday.
The Australian dollar fetched $0.6843 AUD=D4 , 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.
Elsewhere, sterling traded at $1.3121 GBP=D4 , 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.
UK PMI data, due at 9:30 a.m. local time (0930GMT) on
Friday, will be closely watched for any clues on the BoE's next
policy decision on Jan. 30.