· Asian currencies steadied their slide on Friday, as World Health Organization confidence in China’s response to a rapidly-spreading new virus tempered worries over a jump in infections.
The New Zealand dollar NZD=D3 was 0.1% weaker and touched a two-month low of $0.6479. The Australian dollar AUD=D3, at $0.6720, was just above a four-month low hit overnight.
Both have shed more than 1.5% this week and the Aussie has dropped 4.3% this month, leaving it poised for its worst month since May 2016.
The yen JPY= was steady at 109.06 per dollar and the greenback a tad stronger at $1.1023 per euro EUR= on Friday.
Investors are waiting for details about the virus itself, and for signs of a slowdown in its spread in order to judge its likely human and economic costs.
Separately, relief the Bank of England held rates steady sent the British pound GBP= up 0.7% to a week high. Britain's market watchdog, however, is investigating the move because it began just before the bank's announcement.
· EUR/USD is on track to post its biggest monthly decline in six months.
At press time, the currency pair is trading at 1.1025, representing a 1.76% drop from the monthly opening rate of 1.1222. That is the biggest monthly loss since July 2019. Back then, the pair had dropped by 2.58%.
· The U.S. government warned Americans not to travel to China as the death toll from a new coronavirus reached 213 on Friday and the World Health Organization (WHO) declared a global health emergency.
A new State Department travel advisory raised the warning for China to the same level as Iraq and Afghanistan.
· While speaking at a forum on Thursday, the head of the International Monetary Fund (IMF) Kristalina Georgieva noted the following comments.
It is still too soon to gauge the economic impact of the virus outbreak on China's economy, beyond the first three months of the year.
It would be irresponsible to offer any speculations around what may happen.
The immediate impact is obvious. We have travel, tourism, manufacturing in China, and a little bit beyond China in Asia being impacted.
· Earlier during the day, the Times broke the news that the UK PM wants Canada-style deal with the EU but nothing has confirmed. Markets witnessed risk-reset amid mixed headlines concerning China’s coronavirus. The World Health Organization (WHO) finally rang the alarm but joined Chinese diplomats to sound cautiously optimistic.
While there will be a number of celebrations and sad farewell rallies during the day, the Tory leader’s words on the key time will grab major attention. Even if expectations are low that UK PM Johnson signals anything relating to the future trade relations with the EU, a surprise hint will be taken seriously. On the other hand, the US economic calendar has multiple readings including Chicago PMI and Michigan Consumer Sentiment to make traders busy.
· The U.K. will leave the EU on Friday evening after 47 years of membership, marking one of the biggest political and economic shifts in modern Europe.
Brexit brings about the end of a tumultuous three-and-a-half year departure process that has caused turmoil in the U.K.’s political establishment, economic uncertainty and heightened tensions between the U.K. and the EU, its largest single trading partner as a bloc.
The departure on January 31 at 11 p.m. London time will mark the start of a “transition period” in which the U.K. remains a member of the single market and customs union, but begins negotiations with the EU in the hope of striking a free trade deal.
The U.K. government has set an ambitious (and some say, unviable) deadline of the end of 2020 in which a deal must be reached, otherwise it could confront a “no deal” scenario and would have to revert to the World Trade Organization trading rules, putting up trade barriers with the EU in a move likely to damage both the U.K. and EU economies.
· State Street Head of Macro Strategy Lee Ferridge told CNBC that the market is underestimating the potential for any trade agreement between the U.K. and the EU to be “not a lot more than WTO (World Trade Organization) rules,” therefore almost equivalent to the no-deal scenario.
“We’re around $1.30 now, we’ve been down to the low 1.20s before when people were worried about the no-deal Brexit, but if the realization is that really there isn’t going to be that much of a free trade agreement - it’s going to be less access to the single market than Canada has at the moment - then there’s got to be every risk that sterling falls back to those low 1.20s we saw before, particularly if growth stays low.”
· Oil prices rose on Friday following sharp losses this week, as the World Health Organization (WHO) came out against travel and trade restrictions in declaring a global emergency over the spread of a coronavirus that originated in China last year.
Oil prices fell nearly 4% through Thursday this week - hitting three-months lows - before rebounding on Friday, with investors and traders worried over how spread of the virus would impact demand for oil and its products.
Brent crude futures LCOc1 were 68 cents higher at $58.97 a barrel by 0738 GMT, after falling 2.5% in the previous session. Brent is still down 2.8% for the week.
U.S. West Texas Intermediate (WTI) futures CLc1 were up by 70 cents to $52.84 a barrel. The contract fell 2.2% on Thursday and is now 2.5% lower for the week.
Reference: Reuters, CNBC, FX Street
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