FOREX-Yen jumps and yuan sags on Chinese virus fears

The Japanese yen strengthened and China's yuan fell to a two-week low on Thursday as investors grew more anxious about the spread of a virus in China, while the euro was calm ahead of the European Central Bank meeting.

Elsewhere, Australia's dollar rose half a percent after a surprise drop in the country's unemployment rate. Deaths from the flu-like coronavirus stand at 17. Almost 600 people are infected and China has locked down Wuhan, a city of 11 million people, where the outbreak was believed to have originated at an animal market.

The moves up in the safe-haven yen and down in the yuan were measured, suggesting investors were not yet panicking about the virus. The yen rallied 0.3% to 109.57 after earlier reaching 109.50 yen per dollar, its strongest since Jan. 13.

The dollar gained 0.3% versus the offshore Chinese yuan to 6.9351 yuan, which has now lost more than 1% of its value since its six-month highs touched on Monday. Hao Zhou, an economist at Commerzbank, said the worry was that the virus would hurt China's domestic demand.

"To cope with this risk, monetary policy could illustrate further easing bias. For the FX market, the risk-off mode is likely to dominate for the time being," he said. Euro/dollar, trading at $1.1089, was little changed before the ECB meeting, as was the dollar against a basket of currencies.

The ECB introduced a stimulus program in September and data since then have suggested some improvement in the euro zone's economy, so analysts doubt ECB boss Christine Lagarde will announce much on Thursday. Investors will focus on her answers to questions about the ECB's strategic review, which could see changes to its inflation target.

"The ECB meeting will, in our view, have limited implications for EUR/USD. The two key points in the Bank's message should be, in our view, that data suggests a pick-up in inflation, and the manufacturing cycle has bottomed out," ING analysts said in a research note. The ECB rate decision is due at 1245 GMT. Its press conference starts at 1330 GMT.

The Australian dollar gained 0.5% to as high as 0.6879 after data showed unemployment declined to a nine-month low. Sterling consolidated around $1.3040 after gaining Wednesday on dwindling expectations the Bank of England will cut interest rates next week.

The euro fell to a three-year low against the Swiss franc of 1.0737 before recovering to 1.073. The franc has been strengthening since the U.S. Treasury added Switzerland to a watchlist of currency manipulators, which led some to bet the Swiss central bank will be more willing to let the franc appreciate.

The Canadian dollar dropped again, reaching a one-month low of 1.317 against the U.S. dollar after the Bank of Canada on Wednesday signaled a future rate cut should a recent slowdown in domestic growth persist.