How Do Virus Outbreaks Affect The Forex?

Historically, the outbreak of a rapidly spreading and life-threatening virus can quickly send global markets into chaos. Negative economic consequences are typically felt as trade and travel restrictions, as well as increased social welfare costs, spike investor trepidation. 2020 brought a harsh reminder of how devastating a viral outbreak can be with introduction of the novel coronavirus (COVID-19).

Disease Outbreaks And The Markets

According to the World Health Organization (WHO), a disease outbreak is defined as "the occurrence of disease cases in excess of normal expectancy. The number of cases varies according to the disease-causing agent, and the size and type of previous and existing exposure to the agent."[1]

At face value, the WHO's definition of a disease outbreak is broad-based. Often, a wave of relatively minor influenza, chicken pox or measles cases qualify under the WTO's official classifications. However, when a virus is life-threatening and spreads globally, the economic implications can be dire. Negative impacts are often felt and they result from the following factors:

  • Trade/Travel Restrictions: Disease outbreaks are typically fought by quarantining affected areas. This can mean extensive travel restrictions and outright bans on designated exports.
  • Reduced Foreign Investment: As a general rule, the markets aren't fond of uncertainty. If a virus is deemed an imminent threat, businesses are more likely to cease operations and investiture in affected areas.
  • Social Costs: The financial and human costs of fighting a viral outbreak can be staggering. Developing vaccines, administering treatments and even destroying livestock are expensive endeavors. For example, the 2015 outbreak of Avian Influenza (Bird Flu) in the United States had a price tag upwards of US$3.3 billion. The majority of this cost was associated with the unplanned destruction of 49.5 million chickens and turkeys.[2]

Closed borders, regional divestment and increased costs of fighting/containing the outbreak can all stifle economic growth. While nations local to the outbreak may be hardest hit, the damage frequently spills over to neighboring countries and trade partners.

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Major Outbreaks Since 2000

While the spread of incurable, infectious diseases is relatively uncommon on a global scale, the situation does occur periodically. Depending upon the severity of the viral outbreak, the economic damage can be extensive and long-lasting.

A prime example of this phenomenon was the acquired immune deficiency syndrome (AIDS) pandemic of the 1980s. Estimates from 1986—the early stages of AIDS public awareness—projected an annual aggregate cost of US$8.7 billion to the United States alone, and about 80% of that number was attributed to lost worker productivity.[3] These figures continued to grow over the following nine years, with U.S. costs equating approximately US$75 billion. Further, analysts estimated the losses sustained on the African continent to be devastating as well, totalling US$30 billion by 1993.[4]

In comparison to AIDS, the negative economic impacts of most viruses is minute. However, since 2000, several outbreaks significantly influenced international finance. Below are a few of the most notable:

  • 2003 Severe Acute Respiratory Syndrome (SARS): The 2003 outbreak of SARS taxed the world economy by an estimated US$40 billion in the first six months alone.[5]
  • 2009 H1N1 Flu Pandemic (Swine Flu): Breakout of the H1N1 swine flu had dire consequences for countries in South America. Among the hardest hit was Argentina, which saw its annual gross domestic product (GDP) shrink by an estimated 0.5%-1.5%.[6]
  • 2014 Ebola Hemorrhagic Fever (Ebola): The 2014 Ebola outbreak placed a hefty financial burden on regions at or near ground zero. According to a study conducted by the Journal Of Infectious Diseases, the 2013-16 Ebola pandemic cost Sierra Leone, Guinea and Liberia an aggregate US$53 billion.[7]
  • 2020 Novel Coronavirus (COVID-19): January 2020 brought the rise of the coronavirus outbreak .[8] Originating in mainland China, the COVID-19 virus brought mass quarantines of Chinese cities, travel and export bans. Forecasters projected China's GDP growth to slow by 4%, down to 2% for the first quarter of 2020.[9] As of this writing (February 2020), the COVID-19 situation remains fluid.

Forex Volatility Often Spikes During Disease Outbreaks

Although it is difficult to focus solely on the financial impacts of large-scale humanitarian disasters, several market-related trends are usually present during such periods. Depressed economic growth projections frequently lead to a downturn in domestic currency values local to the outbreak. In addition, the threat of a global pandemic often produces a broader run to safe-haven assets. Both factors promote risk-averse sentiment toward affected currencies and equities markets.

The market behaviour surrounding the 2020 breakout of the COVID-19 virus illustrates both of these phenomena. Short-term volatilities plagued global markets, including valuations of the Chinese yuan renminbi (CNY), gold (XAU) and international equities indices. During the early stages of public awareness toward the COVID-19 virus, the CNY saw enhanced volatility across the majors.

The action was most intense during a three-week period from 20 January 2020 through 7 February 2020:

  • CNY/USD: Rates fell significantly, trending downward to a loss of more than 2.0% for the period.
  • CNY/EUR: The yuan's performance against the euro was among its strongest vs any major. Over the three-week duration, rates fell by a modest 10 pips or 0.76%.
  • CNY/GBP: As the coronavirus media buzz gained steam, currency traders favoured the British pound over the yuan. Ultimately, bearish sentiment dominated the action, with the CNY/GBP losing 1.07% of market share.
  • CNY/CHF: In comparison to the USD and GBP, the yuan held relatively firm versus the traditional safe-haven Swiss franc. Exchange rates of the CNY/CHF lost only 13 pips, or 0.92%.

Past performance is not an indicator of future results.

During the early stages of the COVID-19 outbreak, the threat of a global pandemic shook investor confidence in the capital markets. From 20 January 2020 to 31 January 2020, many asset classes were rapidly repriced:

  • Dow Jones Industrial Average (DJIA): Although the U.S. is not in direct proximity to China or exhibited large numbers of confirmed COVID-19 cases, American equities felt the pain of the outbreak. Investors chose to limit risk exposure to U.S. stocks, sending the DJIA south by 1013 points (-3.46%).[10]
  • FTSE EURO Top 100 (E100): Similar to the DJIA, FTSE 100 investors showed a propensity to sell European equities. Over the 10-session period, the FTSE 100 dropped by 133.80 points (-4.14%).[11]
  • Hang Seng Index (HSI): By a wide margin, the Hang Seng Index felt the most pressure resulting from the COVID-19 pandemic. The HSI retreated by 2856.50 points, an extensive short-term loss of 9.79%.[12]
  • Gold (XAU): During the initial stages of the COVID-19 outbreak, investors sought safety in bullion. For the month of January 2020, gold spot prices rallied by $68.86 per ounce (4.54%).

Past performance is not an indicator of future results.

It is important to remember that each disease outbreak and its impact on the financial markets is unique (and past performance cannot be indicative of future results). However, the performance of the Chinese yuan and global equities during the COVID-19 pandemic of 2020 is instructive. Due to the fact that mainland China was ground zero for the virus breakout, local markets suffered more severely. Given the large-scale quarantines, travel restrictions and new trade barriers, both Chinese equities and the CNY experienced significant short-term devaluations.


The social and economic cost of a viral outbreak can be astronomical. A sizable portion of the economic damage typically results from losses sustained in the domestic markets of afflicted nations. Nonetheless, if an outbreak does gain pandemic status, the aggregate global impact on the currency, commodity and equities markets is unpredictable.

FXCM Research Team

FXCM Research Team consists of a number of FXCM's Market and Product Specialists.

Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.



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