The Coronavirus Impact on the Forex Market
On Sunday 5th April, the number of people who have died as a result of coronavirus peaked at 4,034, while the Queen took to the television in the evening to issue a rallying call to the country. This will have been welcomed by many, particularly as the lockdown continues and social distancing measures continue to take their toll.
While it’s hard to look beyond the sheer health impact of coronavirus, however, we should not forget that this is also a socio-economic crisis that is affecting everyone from business owners and employees to financial market traders.
In the case of the latter, however, you could be forgiven for thinking that those trading in currency and similar derivatives would be able to profit as a result of the coronavirus outbreak. We’ll explore this further below, while asking how the Covid-19 outbreak has actually impacted on the forex market.
Coronavirus – The Story so Far
The coronavirus outbreak first occurred in China, but Europe and the United States have quickly emerged at the epicentre of the crisis.
This is borne out by the numbers, with the cumulative total of confirmed cases in the UK and the U.S. standing at a staggering 371,221 as of April 5th, while these jurisdictions had also recorded 14,088 deaths.
Conversely, the corresponding numbers for China now stand at just 82,602 and 3,333 respectively, while European nations such as Spain and Italy are both amongst the worst three-affected countries in the entire world.
This means that three of the world’s major currencies (namely the pound, the Euro and the USD) have been directly affected by the outbreak, while the global reach of Covid-19 has also caused the value of emerging currencies to plummet over the course of the last four weeks.
With nations such as the UK and the U.S. spending huge sums of cash and adopting quantitative easing measures as a way of coping with the economic fall-out of the virus, macroeconomic factors are also combining to squeeze the value of currencies further.
The Italian coalition government has also signed off on a €750 billion financial package to help businesses and citizens keep themselves afloat as the economy grinds to a halt.
Meanwhile, Pakistani Prime Minister Imran Khan had launched Rs144 billion Ehsaas Emergency Cash Programme on 9th April to support 12 million needy families with a payment of Rs 12,000 to each affected by coronavirus (COVID-19).
How is This Impacting on the Forex Market?
Quite aside from creating a scenario where currency investors are increasingly likely to seek flight, the worst-affected countries have also looked to slash their base interest rates as part of ongoing quantitative easing programs.
The UK has slashed its own interest rate to the lowest-ever level of just 0.1%, for example, creating a scenario where the value of the GBP has declined gradually in line with falling global demand and diminishing foreign investment.
As reported by brokerage site Oanda, this trend is being repeated throughout the world, making it increasingly difficult for traders to identify viable currency pairings even when hedging against the marketplace.
This is particularly true in the Asia-Pacific region, where the Australian Dollar has recently hit a 17-year low and the Kiwi plummeted to $0.5850 cents (its lowest level against the USD for 11 years).
There is some good news for traders, however, with the Japanese Yen continuing to serve as a safe-haven investment (just as it did in the wake of the financial crisis in 2008). This had a dramatic impact on pairings such as the GBP/JPY last week, and this trend is likely to continue in the near-term.
Incredibly, the greenback also provides a source of strength and wealth for investors, as it finished last week stronger against all of its major despite the staggering impact of Covid-19 and the loss of an estimated 701,000 jobs during the last four weeks alone. Thanks to the unique nature of the USD and the way in which markets are taking a severe hit to liquidate almost everything for cash holdings, however, the value of the greenback remains consistently high and an increasingly viable option for investors during almost unprecedented economic times.