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Dollar gains ahead of Fed meeting as traders assess impact of coronavirus

By Amanda Cooper

Commodity prices take a hit as Chinese factories remain closed while oil steadies near three-month low

The dollar edged higher against a basket of currencies, ahead of the latest US central bank decision on interest rates in January 29 trading. Stocks shook off some recent gloom over the spread of the deadly coronavirus while oil regained stability, but held near three-month lows.

Oil steadied after its recent losses, helped by media reports that the world’s largest exporters may extend a series of output cuts, and copper continued to slide as the rapid spread of the coronavirus virus prompted major airlines to cancel flights in and out of China.

Commodities have been hit hard since the outbreak of the coronavirus that has shuttered factories and shops and prompted entire cities, such as Wuhan, where it first emerged, to remain on lockdown.

Both copper and crude oil have fallen by around 10 per cent in the week since China confirmed that the virus could be transmitted from human to human.

The death toll from the virus, a respiratory disease, has topped 130 and there are now over 4,500 cases worldwide. British Airways and American Airlines grounded all flights to and from mainland China and airlines around Asia, including South Korean’s Air Seoul and Taiwan’s China Airlines have cancelled flights.

“China is the kingpin of the global commodities market. The longer factories remain closed, travel restricted and construction stalled, the larger the ramification for commodities demand. This asset class has seen a massive sell-off since the outbreak of coronavirus in China,” ING analysts said in a note.

Brent crude oil was up around 0.5 per cent at $59.13 a barrel, but was still hovering around its lowest since mid-October, while copper prices were down 0.5 per cent at $5,670 a tonne, its weakest since early October.

The dollar edged higher, up 0.1 percent at 98.09, ahead of a decision on U.S. interest rates from the central bank.

The Federal Reserve concludes a two-day policy meeting on Wednesday. Economists do not expect any change in rates.

“With the Fed expected to maintain the status quo, we are not looking for a significant FX market reaction, however. Here, the USD still remains the best of a bad lot particularly as FX is preoccupied with virus contagion fears,” said TD securities.

The pound, meanwhile, edged lower ahead of a decision by the Bank of England on interest rates. Sterling was last down by around 0.2 per cent against the dollar at $1.300, while against the euro, the pound was down around 0.1 per cent at 84.65 pence.

The Bank of England meets on Thursday to discuss UK interest rates. Market expectations for a cut from the current level of 0.75 per cent stand at 50 per cent, according to Reuters. European stock indices rose, propelled by upbeat bank earnings. Spain’s Santander saw a slide in net profits for the whole of 2019, but a 35-per cent increase in the final quarter of the year, while Sweden’s SEB bank beat expectations with a 20 per cent quarterly rise in fourth-quarter net profit.

The EuroStoxx 50 index of leading euro zone blue-chip shares was last up 0.45 per cent on the day at 3,736.06 points, while in London, the FTSE 100 closed almost unchanged, up 0.04 per cent at 7,483.57 points.

On Wall Street, the major indices gained on the day in mid-morning trading, following a raft of upbeat earnings from several big caps. The S&P 500 was last up 0.27 per cent at 3,285.12 points

Apple shares rose nearly 3 per cent to record highs after the company beat expectations with its quarterly results on Tuesday. GE shares rose by nearly 10 per cent and McDonald's rose 2.3 per cent after beating expectations with its fourth-quarter earnings.

FURTHER READING: Coronavirus: BA suspends China flights as evacuation race begins

FURTHER READING:Investors go bargain hunting despite coronavirus fears

https://currency.com/news/2020/01/28/investors-go-bargain-hunting-despite-coronavirus-fears

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