How Has the Coronavirus Impacted the Forex Market?


As the COVID-19 outbreak continues to spread across the globe and countries are facing the realities of trying to contain the virus and protect their people, it’s unsurprising that this is also having a direct impact on the global foreign exchange market.

In today’s post, we’ll be taking a closer look at how the current global epidemic is affecting forex traders and the markets around the world, as well as offering some insider forex trading tips that could help you learn how to successfully trade forex in this volatile market.


The timeline


In order to review the ongoing effects of coronavirus on the forex market, it’s important to look back at the timeline. Since the first case in Wuhan, China in December 2019, the virus spread at an alarming rate across China throughout January and February, with deaths surpassing the 2002-2003 SARS epidemic on 9th February 2020.

Within this timeframe, cases began to appear in other Asian countries, including Taiwan, Japan and South Korea, as well as spreading into the Middle East, Europe, Australia and North America. On 12th March, the World Health Organisation (WHO) declared the novel coronavirus a pandemic, as confirmed cases and the death toll continued to rise.

As we near the end of March, China and other Asian countries seem to be slowly recovering as fewer cases are being reported each day, while Europe still remains the new epicentre for the virus with continually rising figures across the continent. In particular Italy, who has the highest death toll figures to date, is still struggling to get a handle on the outbreak despite extreme preventative measures now in place, meaning the long-lasting effects of COVID-19 are still unclear but likely to be devastating for the whole of Europe.

Across the Atlantic, the number of cases in the United States continues to go up and with them reportedly being slow to implement effective containment measures, WHO are predicting the United States will become the new epicentre over the coming weeks.


The initial impact in China and Australia


Reviewing the forex market in the first few months of 2020, it paints a clear picture of just how volatile the market has been since the start of the year. Naturally, as the outbreak in China went global, so too did its impact on the world economy.

China understandably took the first hit on the forex market as news of the virus outbreak went worldwide. As a result, it wasn’t long before the Australian dollar began to be impacted too, as China is their largest trading partner. Also, taking into account that China’s renminbi is restricted to trade within limited ranges, the Australian dollar is often used as a proxy. However, many investors see it as a ‘risk currency’ when the markets are unstable – favouring other more stable currencies for trade deals. Coupled with reported COVID-19 cases in Australia in late January, these rates continued to be on the decline.


The European crisis


With death tolls in Italy now surpassing China’s, and other major countries like Spain, Germany and France also experiencing increased strain on health services and financial reserves in the fight against COVID-19, the EUR/USD is understandably on a downward trend since the start of the year.

Even though the European Central Bank (ECB) announced they would inject €750 billion into the economy to help manage the financial fallout from the coronavirus on 12th March, this has done little to boost investors confidence who are favouring the US dollar as a more stable currency.

In the UK, the introduction of safety measures against the virus were slow in coming, which impacted confidence in sterling. Coupled with the Bank of England reducing the base interest rates further to 0.1%, their current account deficit and continued Brexit uncertainties, investors are selling off sterling, driving the value down as a result.

However, the one positive to take from this is that other countries within the EU are learning from previous mistakes in countries most affected by the coronavirus in the early stages of the outbreak, introducing stricter coping strategies right away rather than waiting. It’s thought that this proactive approach could help with the recovery of the euro in the long-run, leaving them in a stronger position to make a quicker economic recovery.


The United States fiasco


Across the Atlantic, despite the United States’ initial reluctance to take early measures in the prevention of spreading COVID-19, investors are still readily buying US dollars. Some of this has to do with the Federal Reserve’s willingness to provide as much liquidity to the market as possible, as well as the dollar historically being seen as the ‘currency of last resort’, which is currently helping to preserve the dollar’s value to investors.

However, over the coming weeks and months, the realities of the coronavirus outbreak in the US will inevitably put a strain on their medical and economic stability and their slow reactions to the virus hitting US soil could mean they are also slow to recover. As with most countries hardest hit by the pandemic, economists are predicting that a recession in the United States is almost a given – which could hamper the recovery for the entire global economy.


Where to go from here


Understandably, there is a lot of uncertainty surrounding the global economy at the moment, which directly impacts the forex markets. However, it doesn’t mean there aren’t opportunities to still successfully trade while the forex markets are experiencing levels of volatility

As Greg talks about over on his YouTube channel, making use of readily available tools like Smart Charts will help you learn how to trade forex successfully, teaching you how to read and manipulate the highs and lows of the foreign currency exchange market right now. This system is designed to help you hone your forex trading skills, arming you with the right knowledge and forex trading tips to successfully identify opportunities that could lead to healthy profits.

For more insider guidance on how to learn forex trading, the psychology behind it, the latest forex news and more, take a look at our blog.