The spread of the coronavirus has led to a sharp rise of reported cases and deaths in mainland China since yesterday and over a dozen other countries have now also confirmed cases.
The risk is that this will weigh on domestic and international travel, trade and economic growth and markets have responded accordingly. Global equities and the price of crude oil have tumbled while the price of gold has surged and the safe-haven Japanese Yen has outperformed. US government bond yields have also fallen sharply in the past ten days ahead of tomorrow’s Federal Reserve policy meeting. While the Fed is widely expected to keep rates on hold and may not comment in great detail on the coronavirus Chairperson Powell will likely have to address recent market price action.
Despite this backdrop, developed currencies have been reasonably well behaved in the past 24 hours with perhaps the exception of Sterling which has weakened 0.5% versus the Dollar to below 1.30. The Euro has also lost a little more ground, weighed down yesterday by the release of disappointing German IFO business climate index data for January. At time of writing the EUR/USD cross is threatening to break through the 1.10 level.
