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The effect of the coronavirus on the Forex market

13 April 2020

The impacts of the coronavirus have been felt across the entire global economy with no country or economy immune from its devastating effect

Global share markets have plummeted, local businesses are closing everywhere you turn, and governments are scrambling across the globe to prevent local economies from falling into recession or potentially, a depression. Fear has been a key driver in both the Forex and stock markets with herd mentality taking hold of markets with everyone perceiving risk in the same areas and looking to either liquidate or to fly to “quality” safe currencies.

In times of uncertainty, traders and investors typically seek safe haven investments - but a safe haven is hard to find when global markets are falling, and international trade is grinding to a halt. There are, however, some noticeable trends are evident in the Forex market.

The Australian dollar like other currencies that are highly reliant upon export markets has taken a hammering this year falling from close to seventy U.S. cents to between fifty two and fifty three cents currently. Some analysts are expecting it to fall further yet.

The Japanese Yen on the other hand has been strongly supported against most currencies. The Yen is still considered to be a safe haven in tough times and its price movement against most major currencies has reflected this. This movement was in many ways predictable as the Yen has been historically viewed as a safe haven currency.

Central Banks across the globe have moved to shore up their currency position. The European central bank announced a seven hundred and fifty-billion-euro purchase program in an effort to support the value of the Euro against the US dollar in particular.

Interest rates have been cut globally to support local economies - and markets have generally responded as cuts have been announced. The US Federal Reserve just announced a further cut in interest rates and quantitative easing measures that has seen it fall sharply against other major currencies today. This movement reflects the volatility of the dollar and other currencies as governments react to emerging events.

The dollar’s movement against a basket of other currencies has been extremely volatile since mid-February when the apparent potential seriousness of the coronavirus’ impact upon the US economy. This chart of the broad dollar index plotting the dollar’s relative strength against six major currencies - the Euro, Yen, Canadian dollar, Pound Sterling, Swiss Franc and Swedish Krona reflects the market volatility as the market responded to various announcements and actions taken by the US government and Federal Reserve.

In times of economic uncertainty, panic and fear are common and natural responses. The Forex market and the share market often reflect those responses. The trader who keeps their wits about them and makes decisions based upon good data can actually profit from these situations. The key though is to keep emotions in check and to have a sound strategy in place.

To learn Forex strategies that can be applied in all situations you need education that you can rely upon to give you all of the insights necessary to trade confidently.

USG has a suite of education and training programs that will help you to do just that and is your trusted partner even on bad times. Open a free account with us today.


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