March 20, 2020

Currency News

Market News 20 March 2020

Market News 20 March 2020

What we know

It’s been a frankly exhausting week and I don’t wish to expose you to yet more negative ramblings about viruses and other depressing developments – I think we’ve all had our fill.

The week was full of central banks ploughing money into their respective economies and stock markets in an attempt to provide support and assurance to businesses, and liquidity and stability to incredibly volatile markets. Unfortunately, it remains to be seen how successful either endeavour will be: the economic knock-on effects and ultimate fallout is possibly as unpredictable as the final path of the pandemic, while markets have continued to sustain significant losses as nervousness remains.

It’s important to note that while the ZAR was indeed weak over the past few days (as at the time of writing we’ve lost 6.4% since Monday), Sterling and the Euro each had their turn to come under significant pressure. First was the Pound which lost almost 9% from Monday through Thursday. This added to last week’s fall to bring the losses since 9 March to almost 14% and see GBPUSD at 35 year lows. Thereafter we saw the EUR drop, albeit not to quite the same extent: 5.2% from high to low this week and 7.4% since 9 March.

There are a number of reasons for this:
– an incredible flight to safety in the form of the USD. Having fallen 5% following the Fed’s initial rate cut, the green-back has gained a massive 7.9% in the past 11 days
– scepticism regarding the UK’s response to the virus and whether their initial strategy has cost them time and, possibly, a worse outcome than other developed countries
– Europe continuing to see major countries locked down, as well as two of the worst hit countries in the world in Spain and Italy (which is now has now had more individuals impacted than China)
– The inevitable rates cuts from the BoE, as well as the quantitative easing from both the BoE and ECB, making their currencies relatively less attractive
– what all of the above means for Brexit and what on earth that will look like when it eventually finally happens, given how the world has changed (indeed its ironic to see the European Union with such restricted borders – some strange cosmic joke perhaps?)

Our turn for a cut came yesterday, as the MPC cut local rates by 100 basis points. This was the right move, rather than a cut of only 50 points as many thought, and, while it may not be enough to really support the economy, such desperate times call for desperate measures. Indeed, the market’s response to the move was quite muted – under current circumstances the search for yield quite rightly takes a back-seat to capital preservation when pricing assets and determining currency exposure.

Next week brings with it a potential credit review and downgrade from Moody’s, and we’ll bet a lot of you have (understandably) forgotten about that. We pose the following questions:

– with GDP growth for the year out the window and a massive unexpected health burden on the fiscus, is it simply impossible to not be downgraded?, or
– with global growth decimated, governments everywhere needing to find funding to support their populations and economies, and global markets in turmoil, is there little point in Moody’s downgrading us now and thereby make things even worse?

We’ll wait to see; however, we do believe that the market response to either outcome will likely be hidden in the current carnage and volatility.

What others say

16 March 2020

BusinessMaverick – Time for the SARB to throw petrol on the fire

“The background to this MPC is anything but normal. Covid-19 is wreaking havoc on the global economy and no one can forecast the long-term consequences. From the dramatic shutdown of Chinese factories to the virtual closure of Italy – a G7 economy – to US President Donald Trump’s suspension of travel between Europe and America, events are fast spinning out of control.”

17 March 2020

Moneyweb – ‘D’ word rears head as coronavirus-hit markets brace for recession

“Forecasters at Goldman Sachs and other banks are now projecting a steep economic contraction in at least the second quarter as governments in the United States and Europe start shutting restaurants, closing schools and calling on citizens to stay home.”

18 March 2020

Reuters – Risk premium on U.S. investment- grade credit triples on virus worries

“The difference between the average yield of investment-grade U.S. bonds over virtually risk-free Treasuries widened to 303 basis points (bps) on Wednesday, according to the ICE/BofA investment grade index. That’s up from 101 bps at the start of the year and the highest since July 2009.”

19 March 2020

MoneyWeb – Cash is king as emergency stimulus fails to stop market panic

“JP Morgan economists forecast the US economy to shrink 14% in the next quarter, and the Chinese economy to drop more than 40% in the current one, one of the most dire calls yet as to the scale of the fallout.”

20 March 2020

Bloomberg – Deaths Top 10 000; U.K. Warns on Social Distancing: Virus Update

“A British government committee warned social distancing may be needed for “at least most of a year,” to curb the coronavirus that according World Health Organization is now infecting people at a faster pace. It took three months for the first 100,000 cases, but only 12 days for the next 100,000.”

What we think


Last week we wrote that (on Friday) we had “…seen a small bounce in global markets, partially due to the Fed pledging further supportive intervention… At this moment in time it’s hard to provide high-conviction guidance to our clients”.

As we did last week, we’re going to avoid predictions and rather repeat our guidance to clients:

1. Remember that any decisions taken at the moment are under conditions of immense uncertainty and extreme volatility – try to keep a calm head (and ask us to assist)
2. Keep in mind the reason for your currency trades and what you’re trying to achieve, in line with your specific circumstance and requirements
3. Decide how much value you place on the certainty of knowing the facts now over the uncertainty of what the future may bring
4. Consider hedging your bets by staggering your transfers rather than transferring the full amount under consideration in one tranche
5. Don’t be anchored by your prior rate – given the current situation they are not comparable


Have a great weekend!