Coronavirus concerns drag Asian currencies lower

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22 January 2020

thomasdodds

The Chinese yuan led Asian currencies lower on Tuesday, with concerns over the ‘coronavirus’ pulling much of the markets’ attention in the past 24 hours or so.

T
he potentially deadly virus has already claimed nine victims in China, with the first reported case in the US sparking concerns that it could be set to spread around the globe. This period of the year is just about one of the most important for the Chinese economy. Chinese New Year falls on Saturday, so there is a now a real risk that concerns surrounding the virus could warn off foreign visitors, damaging both tourism and the Chinese economy in general. Approximately 3 billion trips are set to take place during the holiday season, so the potential negative impact could be a severe one.

For now, the market is not getting overly concerned. The yuan lost around one percent of its value on Tuesday, although appears to have found some support around the 6.90 mark.

Euro ends day little changed despite ZEW data

Among the majors, EUR/USD was little changed for the day despite the headlines out of China.

The euro received some brief support from the latest ZEW economic sentiment numbers, although the support was fleeting with the currency giving up the entirety of its gains as the day progressed. President Trump spoke during the Davos event in Switzerland, once again taking a swipe at the Federal Reserve for raising interest rates too fast and holding back the US economy. His comments were, however, not really market moving and investors largely brushed his appearance aside.

With no major data out of the Euro Area today, the key pair may be driven by this afternoon’s US housing data. Aside from any surprises here, the Bank of Canada could be set to steal the limelight as it announces its latest monetary policy announcement.

Pound hits two-week high versus euro

Meanwhile, sterling continues to hold firm against its peers, despite rampant speculation in the markets that the Bank of England could cut interest rates at its next monetary policy meeting later this month. The UK currency even managed to rally to a two-week high versus the euro on Tuesday, perhaps due to the fact that yesterday’s labour data avoided surprising to the downside.

Money markets are now pricing in around a 60% chance of a BoE rate cut next week, although as we mentioned yesterday, much now rests on the strength of Friday morning’s PMI data for January. A disappointing reading here could all but seal the deal for a January cut, whereas a strong reading may punt the decision to Andrew Bailey’s first as the new governor in March.