Last Week’s FX and Economy Summary Feb 03, 2020

Coronavirus fears intensify

Although there were important economic developments elsewhere, coronavirus developments dominated during the week as fears intensified over the domestic and global implications.

The official number of cases in China increased sharply to over 14,000 with the death toll at above 300, although some estimates from international organisations suggest that the real number of infections in China must be substantially higher. There has been a limited spread of cases internationally and countries have imposed travel restrictions with the White House advising US citizens not to enter China.

Chinese business confidence data held firm for January, but the surveys did not capture any coronavirus impact. There will inevitably be a negative impact were fears that extended new-year shutdowns in China would be damaging while global tourism will also be hit hard.

Demand for defensive assets increased with renewed gains for the Japanese yen and Swiss franc with the yen strengthening to 3-week highs.

Oil prices declined to 4-month lows and commodity currencies weakened sharply during the week with the Australian dollar also at 4-month lows.


Overall data releases were mixed with firm consumer confidence, but a dip in an important regional business survey

GDP came in at 2.1% for the fourth quarter of 2019, as expected, but the underlying components suggested weakness.

The Federal Reserve held interest rates at 1.75% following the latest policy meeting which was in line with market expectations. There were no updates to economic projections or interest rate forecasts.

The committee was slightly less confident in the outlook for consumer spending and continued to express disappointment with inflation trends as the rate remained below the 2.0% target.

The overall massage was that any increase in interest rates was very unlikely over the next few months and the dollar edged lower.

There was fresh speculation that the Federal Reserve could cut interest rates again within the next few months which weakened the dollar. The chances of a further cut at the March meeting were seen to be over 25%.


The Bank of England held interest rates at 0.75% following the latest policy meeting. The bank warned that interest rates might need to be reduced if the expected economic recovery failed to materialise. Markets, however, considered that the potential for interest rate cuts had receded and Sterling moved higher, especially as there had been speculation ahead of the meeting that rates would be cut.

The UK officially left the EU on January 31st with the transition period coming into effect where there will no significant changes. 


The latest German business confidence data failed to register an improvement. Euro-zone GDP growth was also held at 0.1% for the fourth quarter of 2019 which was weaker than expected and reinforced reservations over the outlook. 


The Australian CPI inflation data was marginally higher than expected, but risk conditions dominated commodity currencies with the Australian dollar, Canadian dollar and New Zealand dollar all registering notable losses on the week.

Tim Clayton

Tim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics.

Leave a Reply

Notify of