The Euro has slumped to its lowest level against the dollar in two and a half years, amid growing concerns of a German recession and as worries over the coronavirus drive investors to the dollar as a safe haven.
The common European currency has dropped to its weakest level against the US dollar, as the forex market frets over a possible recession in Germany and worries about the spread of the coronavirus.
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The Euro dropped as much as 0.4 per cent to $1.0877 on 12 February to hit its lowest mark since May 2017.
The euro’s slide also came after European Central Bank president Christine Lagarde defended stimulus measures aimed at boosting the region’s economy.
Investors are waiting to see if policymakers choose to cut rates further this year in response to economic pressure from Germany and the coronavirus.
A downturn in Europe biggest economy could spread across the region
Economic news from Germany has not reassured the market. Recent data showed that German industrial production fell for the fifth time in the last seven months. They were the worst industrial production figures since 2007.
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By GlobalDataOver the past 18 months, Germany has narrowly avoided recession twice. According to the OECD, the German economy is expected to grow by 0.4% in 2020 and 0.9% in 2021.
“I am pessimistic about the German outlook because Germany could experience something like the perfect storm,” Marcel Fratzscher, President of the DIW, the German Institute for Economic Research.
Fratzscher referred to multiple risks to the economy. The global trade slowdown, the coronavirus, geopolitical conflicts, a weak financial sector in Europe and Brexit—All these combine to require “immediate action” from the government.
The coronavirus outbreak weighs on the global economy
The coronavirus outbreak is hitting China’s exports and disrupting global supply chains. The world’s second-largest economy has been at a near standstill for two weeks after the government extended the holiday break by another two weeks.
The effect of the epidemic is already reverberating across economies in Asia-Pacific. As the epidemic keeps spreading and the death toll rises, markets everywhere are on alert.
The situation seems to have a positive effect on the US dollar. “The defining characteristic of the dollar in recent weeks has been its role as a safe haven,” said Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered.
He added that in a scenario where the coronavirus abates within a few months, “the US activity impact is likely to be more modest than the impact on Asia, especially if the disease impact is visibly receding within a month or so.”
The US dollar will continue to grow stronger, as the market waits for the economic impact of the coronavirus outbreak to crystallise.
