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Swine Flu Creates Fear in the Currency Markets

Last updated 4/27/2009 3:43 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

The outbreak of swine flu triggered a wave of risk aversion in Asian currency trade today with the region especially concerned given its recent history with SARS virus.  Health officials were on alert across the globe against the pandemic with Mexico acting as the epicenter of the disease while  cases of the outbreak were confirmed in US and Canada.

News of a possible fresh case of swine flu in New Zealand sent jitters through Asia as memories of the SARS outbreak which hit in 2003 cast a particularly negative pall on investors in the region.  The World Health Organization declared the strain of swine flu to be a "public health emergency of international concern." WHO Director-General Margaret Chan warned that the virus had the potential to cause a pandemic, while adding it was too early to tell if it would erupt into a global outbreak.

High beta currencies were weaker across the board with EUR/USD trading nearly 200 points lower than Friday’s New York close as the pair flirted with the 1.3100 figure while both Aussie and kiwi were down more than 1% by early European trade as both the dollar and the yen strengthened .  It is too early to tell if authorities will be able to contain the swine flu virus, but the psychological impact on the markets could have a lasting impact if investors begin to anticipate material slowdown in global trade and tourism.  

The news of the disease couldn’t have come at worst time for global economy,  creating fear and uncertainty in the capital markets just as tentative signs of stabilization were beginning to appear.  If the outbreak remains contained to North America, the concern are like to die down as eth week progresses. However, if  swine flu spreads to Asia and Europe economic activity may be seriously impacted and today’s wave of risk aversion would only serve as the beginning of a new rally for the dollar and the yen.  

 Suspected swine flu cases rise

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.