Coronavirus Concerns See Equity Markets Suffer As Investors Head for Safe Havens

27-02-2020 | treasuryXL | XE |

Coronavirus took the headlines again with the World Health Organisation warning that the world should prepare for a pandemic. The WHO stated it was too early to call the outbreak a pandemic but countries should be “in a phase of preparedness”. As with before, the Dollar and Swiss Franc are benefiting from their safe-haven status, with CHF hitting a 4-year high against the EUR. Both strengthened against most major currencies, as risk-averse investors fear that if the virus becomes a pandemic it will have a significant negative impact on global growth.

GBP/USD fluctuated around 1.29 for the day, despite US Equities collapsing yesterday, as investors adopt a risk off approach. Long-term bond rates fell sharply as worries about a recession increased. The 10-year treasury note is not far from its 2016 record low of 1.32%. In turn, Gold has continued to climb higher, hitting fresh multi-year highs and edging ever closer to the $1,700 mark. Despite the fear amongst wall street, the US Dollar has shrugged off the negativity as it moved higher thanks to its safe-haven status.

EUR/USD moved towards 52-week lows yesterday, falling to 1.0804 yesterday. Coronavirus related events in Italy had affected the EUR, with around 50,000 people under lockdown and the death toll rising to four. The pair   however recovered towards the end of the day, hitting one-week highs of 1.0850 as the S&P 500 closed in on the low of 2020.

GBP/EUR appears to be relatively stable as investors assess the impact of coronavirus to be potentially greater within Europe than it is in the UK. Also, news that the UK budget – which is due to be announced on March 11th – could be bigger than expected should help the Pound remain relatively well supported against the Euro and other major currencies. In the meantime, the market keeps one eye on the build up to the UK-EU trade talks, due to commence next week. Some potentially positive news for the Pound yesterday was reports that the EU’s latest draft mandate indicates the EU will not be pushing for ‘dynamic alignment’. Dynamic alignment is essentially a requirement for the UK to adhere to a certain set of laws and standards, set by the EU, in order to have a free-trade agreement. Today, the EU leaders will be holding a general affairs council, with the Brexit Strategy on the agenda. This could provide greater detail around the EU’s position ahead of next weeks’ talks, any demands that may emerge from the agenda could have implications for the Pound.


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