Dollar index surges to near three-year high as yen dips on stronger risk appetite

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - The U.S. dollar climbed on Wednesday to near a three-year high against a basket of other currencies and the safe-haven yen fell to a nine-month low as investor risk appetite grew due to a decline in the number of new coronavirus cases in China and expectations for more policy stimulus.

The dollar drew support from strong U.S. data and minutes of the Federal Reserves' last policy meeting, which showed cautious optimism on the economy.

China posted the lowest daily rise in new coronavirus cases since Jan. 29. Many view Chinese data on the virus with skepticism, but sentiment was lifted by a Bloomberg report that Beijing was considering cash injections or mergers to bail out airlines hit by the virus. Such steps would follow this week's cut in the medium-term lending rate.

"China is trying to rev up some stimulus to offset some of the negative economic impacts from the issues going on with the coronavirus," said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

Against the Japanese yen the dollar rose 1.29% to 111.28, its highest since May. The yen, which benefits during geopolitical or financial stress as Japan is the worlds biggest creditor nation, logged its biggest daily loss in six months.

Japan's economy shrank in the December quarter at the fastest pace in almost six years, and Trang said worries about this also weighed on the yen.

Fed minutes also supported the dollar, showing showed policymakers cautiously optimistic about holding interest rates steady despite risks caused by the coronavirus outbreak.

The greenback was also boosted by data that showed U.S. homebuilding fell less than expected in January while permits surged to a near 13-year high. Other data showed producer prices last month increased by the most in more than one year.

The U.S. Dollar Currency Index <=USD>, measuring the greenback against six major currencies, rose as high as 99.73, before paring gains to trade up 0.16% at 99.601.

The euro edged higher to rise slightly above $1.08.

The single currency had fallen to a three-year low after a survey showed weakening confidence in Germany.

Sterling slipped back under $1.30 to hit its lowest level in over a week, shrugging off data showing an unexpected surge in UK inflation to a six-month high in January as focus returned to Britain's trade talks with the European Union and government plans to boost spending.

(Graphic: Yen hits 9-month low as virus case count slows png link: https://fingfx.thomsonreuters.com/gfx/editorcharts/GLOBAL-FOREX/0H001R8CEBZ2/eikon.png)

(Graphic: World FX rates in 2019 link: http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html)

(Reporting by Saqib Iqbal Ahmed; Editing by Steve Orlofsky and David Gregorio)