Dollar dented as data disappoints; yen catches a safety bid

NEW YORK (Reuters) – The U.S. dollar fell across the board on Friday after a survey of purchasing managers showed U.S. business activity in the manufacturing and services sectors stalled in February and as investors fretted over the fast-spreading coronavirus.

The IHS Markit flash services sector Purchasing Managers’ Index dropped to 49.4 this month, the lowest since October 2013 and signaling that a sector accounting for roughly two-thirds of the U.S. economy was in contraction for the first time since 2016. Economists polled by Reuters had forecast a reading of 53.

The manufacturing sector barely escaped a slip into contraction, with a flash reading of 50.8, the lowest since August.

Against a basket of six other currencies, the U.S. dollar was down 0.59%.

The euro was 0.68% higher against the greenback. Business activity in the euro zone picked up more than expected this month, a business survey showed on Friday, in welcome news for policymakers at the European Central Bank, who are trying to revive growth and chronically low inflation.

“There are finally signs that the euro zone can indeed recover, perhaps slowly, and if things are going to go the way of contraction here in the U.S., that plays poorly for the buck,” said Juan Perez, senior foreign exchange trader and strategist at Tempus Inc.

The dollar’s broad weakness and increased demand for safe havens helped the yen pull back from a 10-month low hit in the previous session.

The yen, which lost 2% against the dollar in the previous two days amid worries about the health of the Japanese economy, was up 0.5% against the greenback on Friday.

Coronavirus cases in South Korea and Japan, coupled with this week’s dismal economic news out of Japan that stirred talk the country is already in recession, pressured the Japanese currency this week.

“Fundamentally, the case is clearly a bearish one for the yen, though the dynamics underpinning the currency as a safe haven should keep the Japanese currency on the list of outperforming currencies,” Jonathan Coughtrey, managing director at Action Economics, said in a note.

The yen typically rises during geopolitical or financial stress as Japan is the world’s biggest creditor nation.

The new coronavirus has infected hundreds of people in Chinese prisons, authorities said on Friday, contributing to a jump in reported cases beyond the epidemic’s epicenter in Hubei province, including 100 more in South Korea.

The Australian dollar recovered ground to trade up 0.2% against its U.S. counterpart after slipping to an 11-year low on Friday. The impact of the coronavirus epidemic in China, the biggest export market for Australia, has pressured the Aussie in recent sessions. The New Zealand dollar was up 0.41%, pulling back from a more than three-month low hit on Thursday.

Sterling rose against the dollar after British factories reported the fastest rise in output for 10 months in February, assuaging some fears over the economy as Britain prepares for trade talks with the European Union. The pound was up 0.72% against the greenback.

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