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Coronavirus drives market sentiment as markets weigh economic impact

Brexit, BoE policymakers, and data in focus

Despite some positive UK data last week, the British Pound experienced weakness versus the US Dollar, softening to a three-month low. By Friday, the GBP/USD exchange rate had recovered some losses and rallied, but failed to reach the 1.30 level. In Brexit news, the EU and UK are squaring up for negotiations, with the UK stating it won't align with EU regulation, which the union has warned will reduce access to the markets it can offer. It's a relatively quiet UK data calendar in the week ahead, but there are a few moderately influential stats due out, such as Consumer Confidence, and Nationwide's House Price Index. Some of the more significant events in the week ahead could be when members of the Bank of England's Monetary Policy Committee talk, including Chief Economist Andy Haldane, scheduled to speak on both Monday and Friday.

ECB calls for more action

The Euro was another currency to experience some weakness against the US Dollar last week. The Euro has lost some ground against some other major currencies since the beginning of 2020—a weaker Euro could help to boost exports in the economy and support economic growth. European Central Bank policymakers have stated that governments need to revive economic growth should the coronavirus have a more profound impact, given that monetary policy is already very accommodative. This week, there's mainly a raft of low and medium-tier data due out of the Eurozone which could impact the common currency. Stats include German growth, inflation, and unemployment numbers.

US Dollar rallies

Last week, there was a theme of US Dollar strength as renewed coronavirus fears spread through the market. The US Dollar was able to make significant gains against a host of other currencies, including the Australian Dollar, which dipped to an 11-year low. However, Friday revealed some weaker-than-forecast US manufacturing and services data, which gave other major currencies some room to breathe as the Buck retreated. In the coming weeks, US election news could be influential for the US Dollar; over the weekend, Bernie Sanders celebrated a decisive win in Nevada. This week, US Durable Goods Orders, Consumer Confidence, and Preliminary GDP stats will all be out which could create US Dollar movement, as could any further coronavirus developments.

Aussie hits 11-year low 

The Australian and New Zealand Dollars both slipped last week as fears over the spread of the coronavirus and its economic impact swept the market. The Aussie Dollar marked an 11-year low after following a surprise rise in Australian unemployment. Overnight, New Zealand Retail Sales stats failed to meet expectations, which, along with some other indicators, has the potential to hamper economic growth forecasts. New Zealand Business Confidence and Trade Balance data along with Australian Private Capital Expenditure and Construction Work stats will be out in the rest of the week. Still, a lot of movement for the Kiwi and Aussie Dollars may be determined by risk sentiment in the market.

Canadian Dollar hits three-week high

The Canadian Dollar managed to reach a three-week high against the US Dollar in last Friday's session as the US Dollar softened following economic data. The CAD/USD exchange rate noted its most significant advance since the start of 2020 after Canadian Core Retail Sales showed a 0.5% increase on the month in December, higher than the 0.4% forecast, while the previous number was also positively revised. In the week ahead, one of the most important events will be the Canadian growth stat due out on Friday. The Bank of Canada has suggested that an interest rate cut could occur in the near future, so growth and other fundamental data points will be closely watched. Reuters reported on Friday that investors are pricing in a 50% probability of a rate cut by April.