Safe-haven currencies stronger. Carry trades unwind, leading to spike in demand for euros.
FX market volatility has spiked as the coronavirus spreads, causing manufacturing to plummet and more countries to institute quarantines. Federal Reserve Chairman Jerome Powell indicated the Fed's willingness to cut rates to support the US economy and Fed Fund futures are now pricing in a 50bps cut in March. Credit markets begin to show signs of stress as corporate bond sales plummet.
Monday: ISM Manufacturing for February
Wednesday: Markit PMI and ADP private payroll data for February
Friday: Non-Farm Payrolls for February
March 2, 2020
EUR/USD 1.1119 GBP/USD 1.2773 USD/CAD 1.3387 AUD/USD 0.6543 USD/JPY 107.74 USD/CNH 6.959 USD/ILS 3.4837 USD/MXN 19.73 USD/CHF 0.957 USD/INR 72.73
Fed Chair Jerome Powell hinted to the market that the central bank was prepared to loosen monetary policy if necessary. A number of participants now expect the FOMC to cut interest rates at this month’s policy meeting. Peter Buttigieg ended his presidential nomination campaign after his disappointing performance in the South Carolina primary on Saturday, which Joe Biden won.GBP
GBP/USD remains under pressure, falling further below the 1.28 handle. The weaker currency was not enough to support the FTSE 100 which is off 0.7%. Trade talks between the EU and the UK resume today, with many fearing negotiations could break down within weeks as tensions build. Sticking points such as fishing rights are likely to be a stumbling block to progress. The prime minister is threatening to walk away if a deal does not look achievable by June.EUR
The euro has rallied vs. most every currency on what is considered a spike in demand as speculators buy back euros to unwind carry trades. Low euro interest rates make it a popular currency in which to borrow while investing in currencies with higher interest rates. Those (carry) trades are now unwinding in mass after which the euro may very well sink.CAD
The Canadian dollar is stronger this morning on the back of higher oil prices and the belief that the Federal Reserve will need to cut the US Fed Funds rate more severely than the Bank of Canada.ASIA/PACIFIC
China’s manufacturing and non-manufacturing gauges for February both fell to their lowest on record due to the impact of the containment measures taken by Chinese authorities to combat the coronavirus.
The Japanese yen has strengthened almost 4% since February 20. Japanese investors tend to invest outside their country when the global market conditions are favorable and return to Japan (buy yen) when global markets stumble.