(New throughout; changes dateline, previous LONDON)
NEW YORK, Jan 29 (Reuters) - Demand strengthened for the dollar index and the safe-haven Japanese yen firmed modestly by midmorning on Wednesday as a risk-off tone returned to markets amid continued uncertainty about the economic fallout of the coronavirus outbreak.
Although markets had calmed somewhat overnight and appetite for risk assets returned, weakening the yen and Swiss franc, continued uncertainty about the impact of the virus on China and the knock-on effects globally has kept investors wary.
“The session turned to a risk-off tone over the last hour,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
The yen was last 0.07% stronger at 109.05 per dollar. Against the euro the yen was 0.24% stronger at 120.01.
The offshore Chinese yuan - heavily sold in recent days - was roughly unchanged on the day, last trading at 6.968. The Australian dollar, highly exposed to the Chinese economy, has fallen 1.35% since Friday’s close, and was last down 0.35% at 0.674.
The dollar index, which weighs the greenback against a basket of six major currencies, held near two-month highs, last trading up 0.9% at 98.109. The dollar index, a safe-haven asset, has remained bid this week even amid momentary reprieves in market anxiety about the coronavirus.
“Even though the coronavirus is issue number one, we’re not going to move asset prices very far until the FOMC,” said Anderson, referring to the end of a meeting on Wednesday of the U.S. Federal Reserve’s policymaking Federal Open Market Committee.
“I think that maybe buildup to that is what had the dollar a little bit bid overnight, even though we were in risk-on mode at that moment.”
The Fed will conclude its two-day policy meeting on Wednesday afternoon with a statement at 2 p.m. EST (1400 GMT) followed by a news conference with bank Chair Jay Powell. The central bank is widely expected to keep interest rates on hold, but investors will be watching for statements about the balance sheet and the effects of the coronavirus on the global economy.
“One of the key issues we’ll have to hear about from Powell is what the Fed’s reaction plan if coronovirus hits the U.S. and it spreads the way that it has in China,” Anderson said. “That’s probably the biggest point of intrigue for this afternoon, with the secondary point being whether they hike the IOER by five basis points.” (Reporting by Kate Duguid and Tommy Reggiori Wilkes; editing by Jonathan Oatis)