Since the start of coronavirus, predicting the movement of the bonds, bonds, currency, and other assets has become pretty challenging. As you are not a virologist, nor an epidemiologist, you don’t have a professional insight about this matter, the battle in the financial market has become tougher. You can bet on the things that you believe will have its own edge and as much as possible, keep the size of your bet small so as not to suffer huge financial losses, in this ever-changing economy.
How The Coronavirus Hits the Economy
A contagious disease isn’t one of the concerns of Forex traders and other traders from different platforms until the coronavirus started. Arguably, there has been no such disease since the 1918 Spanish Flu that triggered the global economy like COVD-19. Ebola also had a high fatality rate, but luckily, it only affected a small population and was not spread globally to a greater number of people.
There is also seasonal influenza that affects millions of people every year and also takes the lives of thousands of people from all over the world annually. But it is nothing compared to COVID-19. They are predictable and have a lower mortality rate that they are even considered part of people’s normal events of life.
But with the coronavirus, it has a dangerous character like incubation period, virulence, and contagiousness. All these things make it more dangerous than seasonal flu. Because of this, the capability of the government was greatly challenged, the same goes for the health officials who are fighting head-on with the virus. But this challenge has transcended to economists and investors as the coronavirus has gravely affected the capital flows.
Evaluating the impact of coronavirus in the economy is quite hard, especially in Forex Trading. The only thing you can do is to check the past analogs. Investors are using the events of the past to determine the future. As for the coronavirus, investors are using the SARS epidemic. But then, SARS is a lot different from COVID-19 and it only affected a small part of the economy when it first started about 20 years ago. This approach is considered heuristic and therefore, leads to complacency.
When the virus first hit other countries around mid-January, the financial market readily reacted but only about 15% plunge was seen. It was also announced that China did aggressive measures to contain the virus.
This made investors believe that the virus will be contained in a short span of time. Countries like Brazil and Australia who export to China saw a retreat in their currencies. But for the next months, that scenario changed drastically, multiple cases emerged from different parts of the world. It was soon considered a pandemic.
At the moment, the financial market is focusing on the disinflationary elements and this approach will be upheld for a while. Since oil has crashed for more than 25% in the previous week, the inflation rate will remain weak. Whether this COVID-19 remains to be a longstanding crisis on the economy remains unknown. But, what’s certain is that it will remain a health issue for quite some time. It will cost not just the lives of humans but the economy as well.