By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - The safe-haven yen and Swiss franc declined on Monday, as risk sentiment improved and fears about the coronavirus eased after China took measures to cushion the economic impact of the new epidemic and pledged to do more to contain it.
China's offshore yuan dropped to a more than seven-week low against the U.S. dollar on Monday, but trimmed its losses as New York trading got under way.
After rising to multi-week highs against the dollar last week in the face of the coronavirus scare, the yen and Swiss franc took a pause from their climb as markets cheered China's efforts.
China's central bank unexpectedly lowered interest rates on reverse repurchase agreements by 10 basis points and injected 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations on Monday.
Chinese authorities also pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support firms affected by the virus epidemic.
The crisis has so far claimed 361 lives in China and 1 in the Philippines.
"There was a turnaround in risk sentiment as the sell-off in stocks and the buying of safe-havens last week were a bit overdone," said John Doyle, vice president of dealing and trading at Tempus, Inc in Washington.
"But to be honest, I don't think there was any difference on the state of the virus between Friday and Monday. I guess markets like the fact that China is being pro-active in trying to contain the virus and in easing the impact on its economy," he added.
Chinese markets still took a beating in the first trading session after an extended Lunar New Year break. The offshore yuan dropped as low as 7.023 yuan per dollar
In afternoon trading, the dollar rose 0.3% against the yen to 108.67
The dollar also extended gains versus the yen after data showed the Institute for Supply Management's U.S. manufacturing index unexpectedly rose in January.
"With global growth stabilizing in recent months and domestic demand also starting to pick up, the ISM survey adds to the evidence that 2020 is likely to be a better year for U.S. manufacturers," said Andrew Hunter, senior U.S. economist, at Capital Economics in London.
The Swiss franc also fell against the dollar, which climbed 0.3% to 0.9660 franc
Gains against the yen and Swiss franc pushed the dollar index up 0.4% at 97.805 (DXY).
The euro also fell 0.3% versus the dollar to $1.1062 (EUR=).
Sterling, meanwhile, tumbled after Britain laid out a tough opening stance for future talks with the European Union following its departure from the bloc last week.
Sterling was last down 1.6% at $1.3030
