Last Week’s FX and Economy Summary Feb 24, 2020

Coronavirus fears persist

Global equity markets remained resilient during the week, but economic concerns over the coronavirus continued to increase.

The number of new cases in China showed some stabilisation, although methodology doubts persisted. China cut interest rates slightly and continued to pump liquidity into the economy with support for companies damaged by production shutdowns

There was also an increase in global cases, especially in South Korea, Japan and Italy.

The World Health Organisation (WHO) warned that the window for preventing a global pandemic was closing quickly.

There were concerns that a sharp downturn in Chinese production would disrupt the global economy due to a shortage of components, especially with major difficulties in switching to alternative sources. 

Japanese confidence dips

The yen weakened sharply during the week after fourth-quarter GDP data declined 1.6% for the fourth quarter. Overall confidence in the economy deteriorated, especially with fears over further first-quarter weakness.

USD/JPY strengthened to 10-month highs above 112.00 before correcting lower.


Minutes from January’s Federal Reserve meeting maintained expectations that US interest rates would be held steady in the short term. Expectations of a robust US economic performance continued for most of the week with strong data from the housing sector. 

Two regional business surveys also recorded significant gains for manufacturing in February data.

Confidence was, however, punctured late in the week by the latest PMI data which recorded a dip in manufacturing confidence while the services-sector index dipped sharply into negative territory and the weakest reading for over 6 years with new business declining for the first time in over 10 years. 

Dollar corrects

After strengthening for most of the week with the currency index at 3-year highs, Friday’s data triggered a significant correction as speculators pared long dollar positions.


Data releases were mixed during the week with a solid underlying tone. Unemployment held at 3.8% in the three months to December while growth in wages slowed.

The CPI inflation rate increased more than expected to a 6-month high of 1.8% from 1.3% previously while retail sales recovered ground for January.

The important PMI business confidence data registered an increase to 10-month highs for the manufacturing sector while services-sector sentiment retreated slightly. Overall confidence held at 16-month highs.

Overall, markets expected the Bank of England to hold interest rates steady in the short term. 

Sterling was still hampered by concerns that UK/EU talks on the future trading relationship would be acrimonious.


German business confidence data was mixed, although the PMI manufacturing index did strengthen to a 10-month high while overall Euro-zone confidence improved slightly.

There were still expectations that the Euro-zone economy would be undermined by weakness in China.

The Euro declined to fresh 3-year lows as underlying selling increased on economic fears before finding some relief.


The Canadian inflation rate increased to 2.4% from 2.3% with the Canadian dollar able to make limited headway during the week.

The Australian dollar remained under pressure due to fears of the coronavirus outbreak with expectations that the bushfires would also be a factor in triggering another cut in interest rates. Unemployment also increased for January. AUD/USD dipped to fresh 10-year lows before a slight recovery with the New Zealand dollar also under pressure.

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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