The dollar and yen both bounced strongly on Monday after investors cut their exposure to risk following an outbreak of swine flu in Mexico.
The World Health Organisation declared “a public health emergency of international concern” and, while the death toll from the new influenza strain in Mexico passed 100, there have been no reports of fatalities from suspected cases in Canada and the US. Hans Redeker at BNP Paribas said: “If the spread of the disease is limited, then we would not expect a prolonged market impact.”
He added, however, that the dollar and yen would be the most popular havens if the disease proved to be more virulent.
“Given the recent ‘green shoots’ in the economy, the market would take any worsening of the outbreak as an obstruction to the global recovery process,” he said.
With the source of the outbreak centred on Mexico, the peso was sold down 2 per cent to 13.73 pesos against the US dollar.
There were initially losses across many equity markets until Wall Street trading began and helped turn Europe’s bourses round.
But the damage had been done to risk sentiment for foreign exchange investors, with emerging market currencies among the most severely hit.
“This will remain a focus of the market for now and, in the very near term, the news flow seems more likely to hurt risk appetite than help it,” said Robert Lynch at HSBC.
Brazil’s real lost 0.8 per cent to R$2.1983 against the dollar. Hungary’s forint fell 1.9 per cent to Ft224.66 per dollar and by 0.8 per cent to Ft295.45 against the euro.
South Africa’s rand lost 1.4 per cent to R8.8282 against the dollar and the Turkish lira fell 1 per cent to TL1.6224.
Norway’s krone was another heavy casualty, down 2.4 per cent against the dollar to NKr6.7104 and 1.5 per cent weaker versus the euro at NKr8.8102.
Poland’s zloty was 2.8 per cent lower against the dollar at 3.4609 and 1.5 per cent off versus the euro at 4.5450.
Also weighing on the zloty were lingering concerns over Poland’s entry to the euro following last week’s data that showed the country’s budget deficit surpassed the European Union’s 3 per cent target ceiling.
Sterling outperformed, reclaiming ground lost after a poorly received UK budget. The pound was flat against the dollar at $1.4658 and down 0.2 per cent against the yen to Y141.58. However, it gained 0.8 per cent against the euro to £0.8956 and rose 0.7 per cent to SFr1.6805 against the Swiss franc.
The euro fell 0.9 per cent against the dollar to $1.3127 and 1.1 per cent against the yen to Y126.82. The New Zealand dollar eased against its US counterpart ahead of an expected cut in New Zealand interest rates this week.