Home Stock & Shares Risk currencies steady as investors assess the economic fallout of the virus outbreak

Risk currencies steady as investors assess the economic fallout of the virus outbreak

by Jonathan Adams

Risk currencies stabled on Wednesday as investors waited for news on the economic impact of the coronavirus outbreak in China

Riskier currencies stabilised on Wednesday and the demand for safe-haven dipped as investors waited for news on the economic impact of the coronavirus originating in China.

The demand for safe-haven has increased as investors took shelter in currencies such as the Japanese yen and the Swiss franc.

The offshore yuan was marginally stronger at 6.9551 per dollar CNH=, compared with 6.9900 on Monday, which was its weakest in almost a month.

Firmer-than-expected inflation figures supported the Australian dollar from Tuesday’s three-and-a-half month low to $0.6773, a gain of 0.15% for the day AUD=D3.

The Japanese yen was a touch weaker. Though with moves slight across the board, it is clear traders remain on edge.

“The way risk is trading, people are saying that perhaps we reached peak worries, peak fear,” said Chris Weston, Head of Research at Melbourne brokerage Pepperstone. He added, “But it’s got an uncertain feel to it…it’s difficult to sell the yen or sell Swiss franc in an environment where the newsflow is still getting progressively worse, and we’re not really fully able to price risk.”

Worries around the virus are high as little is known about the virus and it is spreading fast. The death toll rose sharply to 132 on Wednesday, with nearly 6,000 cases being detected so far.

The yen was a touch weaker at 109.2 yen per dollar JPY=, while the Swiss franc CHF= edged 0.1% softer to a two-week low of 0.9744 francs per dollar.

Mainland Chinese markets are shut for Lunar New Year this week, with onshore currency and bond trading closed. Hong Kong’s equity markets tumbled in their first session since the break.

Meanwhile, the euro stood at $1.1013 EUR=, recovering from a two-month low of $1.0998 on Tuesday following a strong U.S. consumer sentiment buoyed the greenback.

Elsewhere, the euro stood at $1.1013 EUR=, having hit a two-month low of $1.0998 on Tuesday, after a strong U.S. consumer sentiment boosted the dollar.

Sterling was steady at $1.3018 GBP=D4, having also dropped overnight as the dollar rose to a two-month high against a basket of currencies .DXY.

In Asia, the dollar held below that peak at 98.027.

The U.S. Federal Reserve meets later on Wednesday and is expected to keep rates on hold.

But some think a mere mention of risks from the coronavirus may spark speculation the Fed could dole out more stimulus in future, if the U.S. economy is hit by fallout from the outbreak.

It is not necessarily the virus per se that is the problem for the world’s economy, said Jeffrey Halley, senior market analyst for Asia Pacific at broker OANDA.

Halley said, it is the self-feeding negative feedback loop on economic activity, and thus growth, it creates…a worst-case scenario, dragging over the next few months, could even knock the Federal Reserve off autopilot trajectory.

This article is for information purposes only.
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