Last Week’s FX and Economy Summary Feb 17, 2020

Coronavirus fears ease slightly

Global equity markets made further net progress during the week amid hopes that coronavirus fears would be contained and central banks would continue to provide strong support.

Although there were expectations of damage to the Chinese and global economy, there was confidence that there would be a swift recovery later in the year.

In this environment, the yen failed to secure further demand during the week. 

Markets expect US out-performance to continue

Although fears surrounding the coronavirus fears eased slightly, there will still be significant economic damage to China and an impact on the international economy.

Within the global economy, the Euro-zone has a larger dependency on trade than the US. There were, therefore, expectations that the US would continue to out-perform the Euro area.

Euro selling persists

Overall currency volatility remained low with EUR/USD volatility close to record lows. In this environment, there was increased confidence in selling the Euro and investing in high-yield assets. These flows further undermined the single currency with the currency dipping to the lowest level for close to 3 years. 


Overall domestic growth releases had only limited impact during the week. Retail sales increased 0.3% for January with subdued overall spending growth.

The headline annual inflation rate increased to 2.5% from 2.3% previously with the core rate holding at 2.3%.

Fed Chair Powell reiterated that interest rates were likely to remain on hold in the short term unless developments failed to meet Fed expectations.

Overall, expectations of a Federal Reserve rate cut at the March meeting declined to around 10% which provided net dollar support. 


UK GDP growth recovered for December and there was no change for the fourth quarter with some relief that the economy did not contract for the quarter.

Political considerations had a significant impact with the unexpected resignation of Chancellor Javid as Prime Minister Johnson looked to take greater control of fiscal policy. There were expectations that the March budget would include a stronger boost to spending which, in turn, would lessen the chances of any Bank of England move to cut interest rates.

Sterling moved higher on the news with EUR/GBP dipping to 8-week lows while GBP/USD regained the 1.3000 level.


The German economy registered no growth in the fourth quarter of 2019 and Euro-zone growth was held to 0.1%. 

There were also fears that the Chinese coronavirus outbreak would cause further damage to Euro-zone with further pressure on German exports.

These economic fears triggered a further loss of confidence in the Euro during the week.


The Reserve Bank of New Zealand held interest rates at 1.00%, in line with market expectations. The central bank, however, also expressed satisfaction in inflation trends and stated that the expansionary fiscal policy would have an important impact on the economy.

Overall, the bank did not expect interest rates to be cut in the year ahead which triggered sharp gains for the New Zealand dollar.

The Swiss franc maintained a strong tone during the week amid expectations that the National Bank would not be able to counter currency strength.

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.

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