The economic and social impact of the coronavirus dominated headlines last week. There have been increasingly frequent reports of disruptions and delays to international supply chains starting to impact global trade and production, with Chinese companies under growing financial strain. Moreover tensions in China and internationally in response to the spread to the coronavirus have flared up. This has kept Asia-Pacific currencies under pressure while providing support for the US Dollar and safe-haven Swiss Franc.
It was indeed another strong week for the Dollar which is benefiting from safe haven flows attracted by a robust US economy and a central bank seemingly happy to keep its policy rate unchanged at a higher level than most other major central banks. In trade-weighted terms the Dollar appreciated 0.7% and it has rallied a further 0.4% in the past 48 hours to its strongest level since early October.
The NZD/USD cross is threatening to fall below 0.63 for the first time since mid-October and in trade-weighted terms the Kiwi Dollar was down 0.8% last week to its weakest level in three months. The Australian Dollar only fared marginally better.
The Euro held its own last week, with the EUR/USD cross reasonably stable around 1.08, thanks in part to a rebound in the Eurozone (flash) composite PMI rose to a 6-month high of 51.6 in February.
Sterling started the week off strong, buoyed by news that the budget announcement (scheduled for 11th March) would not be delayed, but then dipped to end the week down 0.5% despite the release of better-than-expected UK macro data.
UK CPI-inflation and retail sales rose more than predicted in January and the UK (flash) composite PMI was unchanged at 53.3 in February, despite concerns about supply-chain disruptions. But tensions within Prime Minister Johnson’s newly appointed cabinet and market concerns about a UK-EU trade deal and lingering risk of a Bank of England rate cut saw Sterling quickly reverse. The GBP/USD cross, which had hovered around 1.30 since mid-October, fell below 1.29 on Thursday and has since remained below 1.30.
