- Pound hit as market runs to safety
- USD lowest vs yen in 20 weeks
- Euro rallies as markets unwind carry trade
The pound dropped heavily on Friday losing over 1% against the euro and dollar as fears on the fast spreading coronavirus sent markets running to safety. The yen, swiss franc and dollar all rallied. On Monday, GBPEUR also moved lower, from 1.16 to 1.1530. Investors are also fretting about Britain’s negotiations with the European Union over a trade deal and whether a UK budget next month will include much more spending, which many investors say is necessary to boost economic growth. The Bank of England has also commented that they are ready to inject stimulus into the UK economy to stabilise the falling stock market and currency.
The euro rallied as markets unwind the recent euro “carry trade” where they borrow in currencies linked to low interest rate jurisdictions, and invest into currencies and assets with higher interest rates. The euro rose to one-month highs of $1.1074 and last stood at $1.1050, up 0.3% so far in Asia, after a 1.7% gain last week, the largest in two years. Reports of more coronavirus cases in the United States undermined the perceived strength of the U.S. economy and supported the euro and other major currencies against the dollar.
- The USD slid to a 20 week low vs the yen on Friday as the Fed chair Powell suggested that they are looking into interest rate cuts as fears on the coronavirus grow. Powell on Friday said the central bank will “act as appropriate” to support the economy in the face of risks posed by the coronavirus outbreak, though he said the economy remained in solid condition.
- Markets also grow cautious about the strength of the US economy as coronavirus hit the states.