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US Dollar Rally Sparked by Safe-Haven Demand Amid Coronavirus Crisis

February 24, 2020 at 14:50 by Andrew Moran

Closeup of several USD100 notesThe US dollar is surging to kick off the trading week, buoyed by renewed safe-haven demand as the coronavirus continues to extend outside China. While the situation has relatively stabilized in the world’s second-largest economy, investors are in a panicky state because of how the outbreak is beginning to intensify all over the world. Despite a slight retreat on Friday, the greenback is looking to test multi-year highs in the coming sessions.

The global death toll has surpassed 2,500 and the number of confirmed cases has exceeded 79,000. The two major developments that financial markets are monitoring is the disruption to the global supply chain and the spread of Covid-19. And these two aspects are sending US equities cratering.

International Monetary Funding (IMF) Managing Director Kristalina Georgieva warned in a statement that the coronavirus could threaten the global economic recovery. Georgieva made these comments following a G20 meeting of finance ministers and central bank heads in Saudi Arabia.

This is a human tragedy, but it also has negative economic impact. I reported to the G20 that even in the case of rapid containment of the virus, growth in China and the rest of the world would be impacted. Of course, we all hope for a V-shaped, rapid recovery — but given the uncertainty, it would be prudent to prepare for more adverse scenarios

Although China’s major industrial sectors are gradually resuming operations, nearly all of them are yet to be at full capacity, which could reduce exports to major foreign markets. This could explain the huge selloff in chipmaker, technology, and telecommunications stocks.

Experts are also sounding the alarm on tourism. In a research note published on Monday, ING forecast that Asia could lose more than $100 billion in tourism receipts this year, citing travel restrictions and travelers remaining wary long after everything has been declared safe. It is estimated that tourism revenue contributed more than 10% to China’s gross domestic product. But tourism could hurt more than just East Asian countries as more nations report a spike in cases.

Iran has reported 61 cases and 12 deaths. Italian authorities say the number of people infected with the virus has topped 200. Iraq announced its first case. South Korea has more than 800 cases. North Korea has reportedly quarantined 380 foreigners, while Israel might quarantine 200 South Korean visitors. England said further additional patients have tested positive for Covid-19.

On the data front, the Federal Reserve Bank of Chicago’s National Activity Index rose from -0.51 in December to -0.25 in January, beating the market forecast of -0.92. The key data – durable goods orders, personal income and spending, and final University of Michigan readings – will be released at the end of the week.

The US Dollar Index rose 0.34% to 99.58, from an opening of 99.34, at 12:39 GMT on Monday.

The USD/CAD currency pair advanced 0.42% to 1.3278, from an opening of 1.3224. The EUR/USD tumbled 0.14% to 1.0832, from an opening of 1.0846.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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