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FOREX-Hedge funds spur dollar demand as hopes coronavirus will stabilise grow

Published 02/12/2020, 07:26 PM
Updated 02/12/2020, 07:32 PM
© Reuters.  FOREX-Hedge funds spur dollar demand as hopes coronavirus will stabilise grow
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* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee
LONDON, Feb 12 (Reuters) - The dollar held near a four-month
high on Wednesday on growing hopes the spread of the coronavirus
had slowed, encouraging hedge funds to step up purchases of the
relatively higher-yielding greenback.
A Nomura analysis showed trend-following investors, or CTAs'
as they are popularly known, have stepped up dollar buying at a
rapid clip in recent days, buying the greenback against a broad
range of currencies.
Across mainland China 2,015 new cases of coronavirus were
confirmed as of Tuesday, the lowest daily rise since Jan. 30.
China's senior medical adviser also said the outbreak might be
over by April. The slowdown in the number of new cases encouraged investors
to resume seeking yields. The dollar has benefited from that
approach, thanks to its relatively high interest rates. Spreads
between U.S. and German 10-year bond yields, for example, are
holding at more than two-year highs above 200 basis points.
Though market watchers remain sceptical about the dollar's
outlook in the near term before a U.S. election in November and
the central bank's broadly accommodative policy stance, the
environment remains supportive.
"The U.S. economic data is still superior to other
economies' and the growth gap with the rest of the world remains
substantial," said Ugo Lancioni, portfolio manager of the
Neuberger Berman Macro Opportunities FX Fund.
Citigroup's economic surprise index for Europe has slumped
to a four-month low .CESIEUR , while a similar gauge for the
United States .CESIUSD jumped to a five-month high after
dismal German industrial data and strong U.S. jobs figures last
week.
"The steady improvement in risk appetite is helping markets,
and expectations that central banks will not rush into
tightening policy anytime soon is also boosting sentiment," said
Manuel Oliveri, an FX strategist at Credit Agricole in London.
Against a basket of major currencies .DXY , the dollar
edged 0.1% higher to 98.77, just below a four-month high of
98.95 hit in the previous session.

CROWN UP
The coronavirus epidemic has upended China's economy, the
world's second-largest. In foreign-exchange markets,
export-oriented currencies such as the Norwegian crown NOK=
and Swedish crown SEK= have come under some pressure as the
virus spread.
Wednesday offered some respite from the selling with the
Norwegian crown NOK= advancing 0.3% versus the U.S. dollar and
0.4% against the euro EURNOK= .
With data suggesting the near-term growth outlook to remain
upbeat, the crown may gain in the coming weeks after a 5% drop
in the opening weeks of 2020.
The New Zealand dollar NZD=D3 jumped 0.8% to $0.6462, its
biggest rise in two months, after the central bank removed the
chance of a rate cut from its forward projections. NZD/
Recession fears in Europe dragged the euro EUR= to a
four-month low overnight. It recovered to trade flat at $1.0915.


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