Dollar up, but yuan sluggish as traders skeptical of China PMI bounce

TOKYO (Reuters) – The dollar rose against the yen on Tuesday as Japanese investors and companies rushed to cover a shortage of the U.S. currency before their fiscal year end, but sentiment remained fragile as the global coronavirus crisis showed no signs of abating.

FILE PHOTO: One hundred dollar notes are seen in this photo illustration at a bank in Seoul, South Korea, January 9, 2013. REUTERS/Lee Jae-Won/Illustration/File Photo

China’s yuan was little changed even after a key survey showed manufacturing returned to growth in March, as investors remain skeptical of the uptick given many businesses are still struggling resume full operations amid widespread disruptions caused by the coronavirus.

The pound fell against the greenback and the euro as a sovereign ratings downgrade continued to weigh on sterling, underlining the strain on public finances from a much needed massive fiscal stimulus.

Tuesday is the last trading data for Japan’s fiscal year and the end of the quarter for major investors elsewhere, which could lead to some volatile swings as big players in the currency market close their books.

However, analysts warn that an almost certain global recession due to the coronavirus will remain a dominant influence in trading and eventually favor currencies least affected by the economic downturn.

“The talk is Japanese names are short of dollars, which is likely to keep the dollar bid well into London time,” said Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo.

“We have to look beyond that and focus on what’s going on in China’s economy. Even if there is some decent data from China, I cannot be optimistic, because economic activity in many countries is grinding to a halt.”

The dollar rose 0.69% to 108.55 yen JPY=EBS on Tuesday in Asia.

In the onshore market, the yuan CNY=CFXS held steady at 7.0977 against the dollar.

China’s official manufacturing Purchasing Manager’s Index unexpectedly showed activity swung to expansion in March, but traders tempered their optimism because China’s economy is still expected to suffer a steep economic contraction in the first quarter and other major economies are also taking a big hit.

Only on Monday the People’s Bank of China unexpectedly cut its reverse repo rate by the most in almost five years to relieve pressure on the economy.

The euro EUR=EBS fell 0.24% to $1.1013. Traders are bracing for data expected to show a rise in German unemployment as the global economy reels from the coronavirus pandemic.

Against the Swiss franc CHF=EBS, the dollar edged up to 0.9610, following a 0.8% gain on Monday.

Sterling GBP=D3 fell 0.71% to $1.2331, and against the euro EURGBP=D3, the pound fell 0.5% to 89.34 pence.

The pound remained under the gun after ratings agency Fitch cut Britain’s sovereign debt rating on Friday, saying debt levels would jump as it ramped up spending to offset a near shutdown of the economy.

Traders are also awaiting the release of UK gross domestic product later on Tuesday.

The New Zealand dollar NZD=D3 dipped after the country’s government extended a nationwide state of emergency for another seven days to slow the spread of the coronavirus, but the kiwi quickly regained its composure to trade steady at $0.6029.

The Australian dollar AUD=D3 held its ground at $0.6174.

The antipodean currencies have come under heavy selling pressure over recent weeks as their close economic ties to China and the global commodities trade make them vulnerable to the coronavirus outbreak.

Reporting by Stanley White; Editing by Shri Navaratnam

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