FOREX-Dollar index at near 3-year high as yen sinks on stronger risk appetite

* Japanese yen at 9-month low as new coronavirus cases subside

* U.S. Dollar Currency Index at highest since May 2017 (Recasts, updates rates to after open of U.S. market; new byline, dateline; previous LONDON)

By Saqib Iqbal Ahmed

NEW YORK, Feb 19 (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 sank to a nine-month low as a decline in the number of new coronavirus cases in China and expectations for more policy stimulus boosted investors’ appetite for risk.

Strong U.S. data that could support the Federal Reserve’s desire to keep interest rates unchanged after lowering borrowing costs three times in 2019, supported the greenback.

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.

Those steps would come after this week’s cut in the medium-term lending rate, which has fed expectations for a reduction in the benchmark loan prime 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, which tends to benefit during geopolitical or financial stress as Japan is the worlds biggest creditor nation, the dollar rose 0.96% to 110.91, its highest since May.

Worries about Japan’s economy, which shrank at the fastest pace in almost six years in the December quarter, were also weighing on the yen, Trang said.

Investors are awaiting the release of the minutes from the Federal Reserve’s January meeting, due at 1900 GMT.

“The focus will be on the balance sheet management by the Fed,” Trang said.

On Wednesday, the dollar was supported by data that showed U.S. homebuilding fell less than expected in January while permits surged to a near 13-year high, pointing to sustained housing market strength.

Other data showed producer prices increasing by the most in more than one year last month.

The U.S. Dollar Currency Index, which measures the greenback’s strength against six other major currencies, rose 0.24% at 99.688, its highest since May 12, 2017.

The euro bounced briefly above $1.08 but sank below the mark to trade down slightly against the greenback.

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

Sterling slipped back under $1.30, 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.

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