Investing.com - The Japanese yen is in demand Tuesday as a safe haven currency with the outbreak of the pneumonia-like virus in China sparking a bout of risk aversion.
At 03:30 ET (0830 GMT), the yen climbed 0.2% against the dollar, with USD/JPY trading at 109.97. The Chinese yuan was hit, dropping 0.6% against the greenback, with USD/CNY trading at 6.9072. Elsewhere, EUR/USD was at 1.1089 and GBP/USD at 1.3005, with attention turning to the month's ZEW index for Germany and to U.K. employment data out later. The US Dollar Index Futures, which tracks the greenback against a basket of other currencies, was essentially flat at 97.39.
The outbreak of the disease, which has spread from the central city of Wuhan, is still in its early stages. So far there have been four deaths confirmed, but with the peak travel season during the Lunar New Year holidays approaching, the risk that it could spread further is rising.
The impact of the 2002 SARS epidemic is still fresh in many minds. On that occasion more than 8,000 people across 37 countries were affected, with around 800 deaths.
So far the movements in the foreign exchange market have been fairly restrained, with traders fairly sanguine about the situation.
“There is no doubt that eventually the virus will be contained – it’s just a question of when, and does it scale in magnitude,” said Kay-Van Petersen, global macro strategist at Saxo Bank, in a research note.
He added that it’s hard to see a case where this becomes super negative for Chinese (and proxy Hong Kong) equities, and by extension the yuan, “unless it somehow induces local panic selling – yet things would have to get dramatically worse for such a scenario.”
That said, it’s important to remember the impact of the SARS pandemic, with a 2003 academic study estimating the global economic cost at close to $40 billion or more.