Last Week’s FX and Economy Summary Mar 23, 2020

Coronavirus fear continues to intensify

Fears over the economic impact of the coronavirus continued to increase in Europe and the US. Although there were some positive developments in China, overall confidence in the global outlook continued to deteriorate. The number of cases in Italy continued to increase sharply and there was a big jump in the number of deaths to near 5,500 while the outbreak intensified in Spain and Germany. Within the US, California and New York introduced tough restrictions on movements in an effort to contain the outbreak.

Equity markets declined sharply 

Global equity markets continued to decline sharply as confidence eroded rapidly and investor redemptions increased.  There was also a high degree of volatility during the week which contributed to sharp moves across other asset classes including currencies.

Dollar surges amid liquidity issues 

The US currency again strengthened sharply as global liquidity issues dominated. Although central banks acted liquidity aggressively, the sheer demand for dollars continued to put upward pressure on the currency. The US currency advanced strongly to 3-year highs as all other major currencies came under sustained pressure for much of the week.

Why did the dollar shortage persist?

As fears over the global economic outlook increased sharply, companies and institutions continued to increase cash reserves and draw on credit lines with commercial banks. A large proportion of global commerce is transacted in dollars and the demand for cash also increased the net demand for dollars. As tensions increased, therefore, overall dollar demand remained sharply higher.

Global central banks were aggressive in moves to add liquidity into markets and there was some limited success as market stresses eased slightly, but the US currency remained strong.


The latest regional business confidence data recorded sharp declines for both the New York and Philadelphia Fed manufacturing surveys with both registering the sharpest monthly declines on record and the weakest levels since the 2008/09 global crash.

Jobless claims also increased sharply to 281,000 in the latest week from near 210,000 the previous week and the highest figure for over two years.


The Bank of England sanctioned another emergency cut in interest rates with base rate cut to a record low of 0.1% from 0.25% previously. The Monetary Policy Committee also re-started the quantitative easing programme with a further £200bn in bond purchases. 

The government announced a further emergency package of fiscal measures with a government-backed loan scheme with total support amounting to £330bn, equivalent to 15% of GDP. On Friday, further support measures were introduced with direct subsidies for wages for the first time in history. Tough restrictions on activity were also introduced with all leisure facilities closed.

Sterling declined sharply as fears over the domestic and global outlook increased. The UK currency declined sharply to 35-year lows below 1.1500 against the dollar while the Euro also made sharp gains to 9-year highs around 0.9500 before a partial reversal.


The ECB announced a substantial increase in its bond-buying programme with EUR750bn in purchases before the end of 2020 as the central bank looked to provide liquidity and put downward pressure on bond yields.  

The latest German IFO business confidence data recorded a very sharp slowdown for March with the economy sliding into recession. The ZEW survey of investor sentiment also recorded a very sharp down turn with the German economic institutes warning over a deep recession.

The Euro overall declined to 3-year lows against the dollar.


The Australian Reserve Bank brought forward its policy meeting with interest rates cut to a record low of 0.25% as it also introduced a quantitative easing package with purchases of government bonds. The government also introduced a further raft of measures to support the economy.

The Reserve Bank of New Zealand introduced a NZ$30bn bond buying programme. 

The Swiss National bank held interest rates at -0.75%, but issued an even stronger warning that the franc was overvalued.

The Bank of Japan made no changes to interest rates, but pledged to add additional liquidity.

Commodity currencies remained under strong selling pressure as fears over the global economy continued to increase. The Australian dollar declined to 17-year lows against the US dollar while the Canadian currency declined to 4-year lows.

China’s industrial production data recorded a 13.5% annual decline for the first two months on the year with an even sharper downturn for retail sales.

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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