Last Week’s FX and Economy Summary Jan 27, 2020

Coronavirus fears intensify

Markets had just begun to feel more comfortable surrounding the global trade and growth outlook as US-China tensions eased.  

Relief was, however, short-lived as the Chinese coronavirus outbreak intensified.

The virus originated in Wuhan, Hubei province, in late December, but a jump in the number of cases prompted strong action by domestic authorities with transport links to Wuhan suspended. There was a lockdown in several other cities which reinforced fears.

There were fears of damage to the Chinese economy and fresh stress on the global economy, especially with trade tensions already putting the global economy under stress.

In this environment, there was renewed demand for defensive assets with the Japanese yen and Swiss franc seeing fresh buying interest while equity markets declined.  From above 110.00 at the beginning of the week, USD/JPY dipped below 109.00. 


The economic data releases had little overall impact with a solid reading for the business confidence data providing an element of reassurance.

Although there was no major fundamental support for the dollar, the US outlook was still seen as favourable in comparison with other major economies which underpinned the dollar. 

There were no comments on monetary policy from Federal Reserve officials.


Labour-market data was firm with a larger than expected employment increase in the latest 3-month period, although the main focus was on business confidence with the CBI reporting a strong rebound in January.

Following the data releases, market confidence in a January interest rate cut faded and Sterling secured net gains.

According to influential PMI data, the manufacturing sector strengthened to a 9-month high and there was a stronger rebound in services to a 16-month peak as the easing of political uncertainty had an important impact in boosting sentiment.

Although the data boosted sentiment, Sterling was unable to make further headway with the UK retreating only slightly from 1-month highs as profit-taking kicked in.


The latest data recorded a sharp improvement in German business confidence to a 4-month high.

The ECB made no changes to interest rates with the main rate held at 0.0%. Rhetoric from bank President Lagarde was little changed from the previous meeting with comments that the economy was showing some signs of stabilisation.   

She also expected inflation to edge higher, but the rhetoric was not strong enough to boost market confidence in the Euro-zone.

Similarly, stronger readings for German and Euro-zone business confidence failed to have an impact in currency markets and EUR/USD declined to 7-week lows below 1.1050.


The Bank of Canada held interest rates at 1.75% following the latest policy meeting, in line with expectations. There was, however, a more cautious tone within the bank’s statement with doubts over economic strength. Governor Poloz also indicated the possibility of an interest rate cut, although this would depend on how the data evolves. 

The Canadian dollar lost ground following the broadly dovish statement as markets increased their bets on an interest rate cut.

The fourth-quarter New Zealand CPI inflation data was slightly higher than expected at 1.9% from 1.5% previously which provided an element of New Zealand dollar support.

The Bank of Japan made no changes to monetary policy at the latest meeting as global risk dominated.

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