February 2020 - Monthly Economic Outlook

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Gain an overview of the latest developments on the currency market and anticipate fluctuation risks.


The euro (EUR) had a poor start to 2020 with depreciation of nearly 1.8% against the dollar (USD). The American currency has shown a near-general increase the past few weeks due to increasing risk, first relating to Middle East tensions and second due to the economic impact of the Chinese coronavirus. In risk-adverse periods, the euro is typically penalised against the US greenback, and this is exactly what occurred in January. The phase 1 trade agreement between the United States and China, which could have had a positive effect on risk appetite, was completely eclipsed by coronavirus fears. The euro's downward trend was confirmed when the psychological threshold of 1.10 was recently surpassed. We anticipate the downward slide to continue in the weeks to come as long as economic uncertainty remains high. The initial elements at our disposal clearly suggest that the Chinese economy, which represents one third of global growth, will not reboot for several weeks. The economic figures for the first quarter are expected to be very poor until the probable rebound of Chinese growth and world growth in the second quarter.


However, the euro limited its losses against the pound sterling (-0.4% since the start of the year). The trend remains favourable for the strengthening of the British currency due to the post-election clarity regarding Brexit, and economic indicators suggest a rebound of the British macro-economy at the beginning of the year. With a large majority (7 to 2), the Bank of England decided to keep its rates at 0.75%, surprising some market operators. A rate drop is probable in March as a function of changes in national statistics. Between now and then, traders are still clearly taking a buy position on the pound sterling.


In a market dominated by risk aversion, it is not surprising that the Japanese yen (JPY) gained against the euro in January (+1.5%). The Japanese currency's has acted as a safe haven for market operators worried about the ultimate economic impact of the coronavirus. As far as the central banks, both the Bank of Japan and the Central European Bank are on autopilot for the coming months. Consequently, the coming fluctuations in the EUR/JPY pair will essentially depend on changes in risk perception.


Unsurprisingly, the euro also lost a lot of ground against the Swiss franc (-1.20% since the start of the year). Under market pressure, the EUR/CHF pair broke the lower limit of its exchange range, found at 1.08, and has not been able to return to this level despite the repeated interventions of the Swiss National Bank (SNB). The latter has resumed its euro purchases as it had done in August but to a lesser extent for the time being. It seems that the SNB is now seeking to stabilise the exchange rate in the area of 1.0750-1.0800, but the continued high-risk aversion level makes this task very difficult. In the short term, the central bank still has the means to intervene on the market to limit the appreciation of the Swiss franc. However, if the risk perception sustains its high level, it is likely that it will quickly run out of ammunition.


As you know, the euro's decrease against the major currencies at the start of the year is a generalised phenomenon. The euro has lost nearly 0.47% against the Canadian dollar since the beginning of January. The Canadian dollar (CAD) has successfully resisted the decrease in the price of a barrel of oil (-3% over the last four weeks) and the more cautious talk of the Bank of Canada regarding the economic outlook. The central bank's decision not to decrease rates as expected by the market helped to support the CAD against the EUR.

Economic calendar

03/02 USD Iowa Caucus
04/02 USD State of the Union Address by President Trump
07/02 USD American jobs report
11/02 USD New Hampshire Caucus
18/02 EUR ZEW Economic Sentiment Index in Germany