Dollar holds up as Fed acknowledges virus fears

David Hobart

The US dollar was the main winner in the forex markets on Wednesday and into Thursday after the chair of the Federal Reserve revealed fears around the impact of the Chinese coronavirus.

The Fed’s chair, who also said that the bank would leave US interest rates as they currently are with no changes, expressed worries over the impact that the deadly virus could have on the economy.

In his statement, Jerome Powell said: “uncertainties about the outlook remain, including those posed by the new coronavirus”.

However, he also cautioned that more time was required to work out the precise effects of the virus on global economic growth.

According to analysts, a reference to the coronavirus was largely expected.

The consequence for the dollar was a positive one, with a rise of 0.08% noted at one stage in the dollar index.

The index tracks the position of the greenback compared to lots of other important currencies, and is a tool used by traders to determine performance.

It was seen at 98.096 on Thursday.

This represented its best performance since early in December of last year.

Elsewhere around the world, the Japanese yen – which is widely considered to be a safe haven – was up by half a percentage point in its pair against the US dollar.

It was seen at 109.08 at one stage.

This performance was consistent for the yen across the currency pairs.

In its pair with the single European currency, for example, the yen was spotted up by just over a fifth of a percentage point.

At one point, it was seen at 120.04.

The Chinese yuan, which has been in the spotlight for a number of dates now given the ongoing impact of the coronavirus, was seen at 6.968 at one point over the course of the day.

This represented a dip for the currency of around 0.05%.

This was its offshore version, which is traded on the global currency markets.

The onshore yuan is the currency used within China.

Perhaps the biggest victim of the coronavirus in forex terms, however, is not the Chinese yuan but in fact the Australian dollar.

The Australian economy is deeply linked to the Chinese one given that there is a major import and export relationship between the two.

When the Chinese currency or economy is perceived as weak, there is often a knock-on effect for Australia too.

The Aussie dollar was down over the course of Wednesday by around 0.19%.

It was spotted at 0.675 at one point.

Overall, it has seen some significant value shedding this week.

It has gone down by 1.16% over the course of the week.

Looking ahead to the rest of the week, the next key event on the horizon will be the Bank of England’s interest rate decision later today.

The decision appears to be on a knife edge at the moment, and it is as yet unclear whether or not policymakers will vote to cut rates.

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David Hobart
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