Last Week’s FX and Economy Summary Mar 09, 2020

Coronavirus fear continues to intensify

The coronavirus outbreak has continued to dominate markets with fears over a serious global outbreak increasing sharply. There was also a sustained slowdown in reported new cases in China, but global fears continued to increase rapidly.

The Italian outbreak has caused major concerns over the wider European outlook and there are also fears that the number of US cases will increase dramatically once large-scale testing starts. Italy has placed the Lombardy region under lockdown while California and New York have both declared states of emergency. 

China data remained weak, but output recovering

The Chinese PMI data releases remained very weak with record lows for the Caixin business confidence readings in both the manufacturing and services sectors.

There was, however, evidence that production was continuing to recover with a slower improvement in consumer activity. 

Defensive assets in demand

As equity markets continued to weaken sharply, there was renewed demand for defensive assets.

The Japanese yen gained strongly with USD/JPY sliding to 8-month lows at 105.00 with the Swiss franc and gold also making headway. .

Federal Reserve cuts rates, US yields slide dramatically

The Fed sanctioned a cut in interest rates outside of the regular meeting. The Fed Funds rate was cut by 0.50% to 1.25%.

Futures markets, however, priced in even more aggressive easing by the bank with expectations that rates would be cut by at least another 0.50% at the scheduled March 18th meeting.  The chances of rates being 0.50% or lower by mid-year was seen at over 80%.

Bond yields also declined dramatically with the 10-year dipping to record lows below 0.75% compared with 1.90% at the end of 2019

Dollar falls sharply

The dollar had gained early in the year from high interest rates, expectations of economic out-performance and confidence in US assets. During the week, all these expectations were reversed as US economic fears increased.

As this support reversed, the dollar declined sharply to 8-week lows. It registered the sharpest weekly decline for over 3 years with losses against all major currencies. 


US non-farm payrolls increased 273,000 for February, well above consensus forecasts of 175,000 and the January figure was also revised higher to 273,000 from 225,000. There was an increase in manufacturing jobs and second successive solid increase in construction jobs.

The overall market impact was limited given that the data was backward-looking with markets expecting a sharp reversal for next month’s data. 

The Democrat Party leadership race narrowed sharply to Biden and Sanders as other candidates dropped out with Biden scoring most victories on Super Tuesday and becoming the front-runner.


There were no major data releases during the week. Bank of England officials stated that the bank was prepared to action whatever was action was necessary, but the Monetary Policy Committee wanted more time to assess the evidence.

The decision not to sanction an emergency cut in rates provided Sterling protection during the week, although dollar losses were the dominant influence. 


The ECB indicated that it was reluctant to cut interest rates in the very short term with the yield gap between Euro-zone and US bond yields declining sharply.

The principal support for the Euro still came from a reversal of previous selling


Oil prices declined sharply as OPEC and Russia failed to agree further production cuts with co-operation unravelling as Saudi Arabia threatened to increase production and cut prices.

The Reserve Bank of Australia cut interest rates to a record low of 0.50% and stated that further action could be taken if necessary.

The Bank of Canada also cut interest rates by 0.50% to 1.25%, the first cut for close to four years. Bank Governor Poloz also stated that further action could be taken if required. 

Canadian employment increased 30,000 for February, although the impact was limited with weaker oil prices undermining the Canadian dollar.

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