Coronavirus causes more uncertainty for Chinese yuan

David Hobart

Fears around the impact of the coronavirus intensified as the forex trading week got underway – leading to problems for the Chinese yuan.

The virus, which has now claimed the lives of over 80 people in China and infected almost 3,000 people across the globe, has led health experts and governments to reduce the risk of a pandemic.

As suggestions arose that local and regional authorities in China were failing to respond quickly enough, the Chinese central government announced that it would take steps to reduce the impact of the outbreak in certain parts of the country.

As is common during times of global concern, the Japanese yen – which is known as a safe haven asset – attracted a lot of investment over the course of Monday.

At one stage, it was spotted up by 0.3% at 108.94.

The Swiss franc, which is also known as a safe haven, went up by almost a fifth of a percentage point in its pair against the US dollar.

It reached 0.969 at one stage.

The dollar index, an artificial tool used to track the performance of the currency against a range of others around the world, was seen up marginally – by 0.07%.

It was noted at 97.925.

The offshore Chinese yuan, which is traded on the open market and which is distinct from the currency used onshore in China, has dropped significantly in recent days.

On Monday, it saw nearly a whole percentage point wiped off its value in its pair against the US dollar and reached 6.99 at one stage.

The greenback has mopped up losses left behind by the yuan’s moves and has managed to gain over 2% in the pair in the last week alone.

The impact of the Lunar New Year also caused problems for the yuan, as it meant that banks were closed.

This was worsened by a range of other nations enjoying public holidays today – including Australia, Singapore and Hong Kong.

This had a knock-on effect of lower liquidity.

Elsewhere around the world, negative economic indicators caused havoc for the single European currency.

It was down to its worst performance in two years against the Japanese yen and was seen at 119.90 at one point.

This came after a release from the Ifo institute showed that levels of business morale in Germany went down in January – causing surprise for traders.

This left the single currency 0.02% down against the greenback, resting at $1.102.

Tuesday looks set to be a busy day in the foreign exchange markets, with plenty for traders to watch for.

Durable goods orders information as well as nondefense capital goods orders (excluding aircraft) are set to be released from the US in the afternoon.

The Redbook index for the dates around 24th January will also be out.

This index, which tracks year-on-year same-store sales growth, is a key retail indicator for the US.

Elsewhere, a speech from Philip Lane at the European Central Bank will take place at 3pm GMT.

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David Hobart
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