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How Has Covid-19 Affected The Forex Markets?


April 3, 2020
How Has Covid-19 Affected The Forex Markets?

According to worldometer as of the 2nd of April, the COVID-19 pandemic has affected 695,865 patients and 47,303 deaths worldwide.

Together with the whole human race, the global market has also been deeply affected by this unexpected and unfortunate virus.

Reuters reports that world stocks were set to close their worst quarter since 2008, and European shares have had an even worst time, suffering their worst three months since 2002. Britain’s FTSE last endured such a drop in 1987.

Additionally, a survey of 40 analysts forecasted that Brent crude prices would average $38.76 a barrel in 2020, which is 36% lower than the $60.63 forecast in a survey in February.

The 2020 outlook for West Texas Intermediate crude was slashed to $35.29 a barrel from last month’s forecast for $55.75.

What is going on in the US?

Currently, in the US, social distancing and quarantine measures are being implemented across the country, with some cities on complete lockdown.

All schools have been officially closed, and many people are working from home. A good 80% of economic activity in the US has ground to a halt such as restaurants, bars, gyms, the tourism trade, and in many cases non-essential shops have temporarily closed.

The very measures that the government is implementing to protect the American public from COVID-19 is causing demand for goods and services to evaporate. The US is currently experiencing 215,344 cases, 5,112 total deaths and 8,878 recoveries.

What About the USD?

The COVID-19 outbreak in the US escalated at the end of February this year. Therefore, economic data is only just starting to show the impact that the virus is having on the economy now.

Since we are witnessing different stages of the COVID-19 outbreak, the USD has been affected in different ways.

To begin with, since the US Dollar is the reserve currency of the world, means that in times of economic stress investors sell out of riskier assets or perceived riskier currencies and buy into the dollar for its safe-haven properties.

Many businesses have also been hoarding dollars in fear of tougher times in the future, meaning that the value of the US Dollar is being pushed higher.

The Federal Reserve promising unlimited quantitative easing and the Senate $2.2 trillion fiscal stimulus package has served to ease fears in the market and lowered the value of the dollar.

Market participants believe that there could be more stimulus to come, and this could ease the value of the dollar further.

What is going on in the EU?

Italy, Spain, Germany and France are the currently most COVID-19 affected European countries.

Big parts of Europe are now in quarantine, and business activity has plummeted by the most on record.

It is expected that the already fragile eurozone economy will be even more affected, and this will potentially weigh on demand for the common currency.

The longer the lockdown continues in Europe, the less likely it will be to follow a rapid economic recovery.

According to currencylive.com, “The European Central Bank hasn’t cut interest rates because rates were already in negative territory. However, the ECB has promised unlimited bond-buying to prop up the economy. Individual countries within the eurozone also have more power to boost fiscal stimulus to boost the economies.”

What is the Euro to dollar COVID-19 impact?

Up until early February, EUR/USD was steady at US$1.08.

Since the outbreak escalated outside of China, the exchange rate between the Euro and the US Dollar received an injection of volatility.

Reports showed that the pair soared to a 13-month high of US$1.1496 before crashing 860 points in 2 weeks to an almost three year low of US$1.0636.

EUR/USD has recovered as central banks have pledged unlimited support and are trading back over $1.11.

However, this is unlikely to be the end of volatility in the pair given that the outbreak in Europe and the US still has a way to run.


Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.

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