Not only is the forex market one of the biggest entities of its type anywhere in the world, but it’s also incredibly volatile and constantly subjected to shifting price points.
This trend is arguably more prominent today than at any other point in the last decade, with the forex market and currencies across the globe bearing the brunt of the Covid-19 pandemic (and associated quantitative easing measures) in the form of sustained devaluation.
We’ll explore this further in the post below, while appraising the current forex market trends and asking what the remainder of 2020 could have in store?
Starting with the GBP, EUR and USD
The pound was always forecast to suffer a decline in 2020, as it continued to trade in a narrow range against the backdrop of Brexit. This trend seemed to come to a head last week, when the GBP finished lower against a basket of major currencies including the EUR and the USD.
Over the course of the week, the GBP/USD interbank rates slid from 1.2430 to 1.2114, while the pound also declined to a lowly 1.1193 against the Euro.
While this can partly be attributed to the fragmented nature of Brexit talks, the socio-economic impact of Covid-19 is also beginning to take its toll.
According to Chancellor Rishi Sunak, the UK is now at the cusp of a significant recession, with GDP growth slipping to -2% for Q1. Overall, the UK is poised for a 35% decline in total economic output thanks to the global pandemic, while the measures taken to manage this drop will also compound and restrict the value of the pound.
Of course, there’s also the potential for the Euro to fall markedly in the near-term, with the single bloc poised for a simultaneous recession while continuing to negotiate its own Brexit stance. However, the EUR/GBP has continued to rally in recent times, soaring to a two-week high of 0.8814 last week after a short-term burst of losses.
The Strength of the Greenback and Longer Trends
The clear takeaway here is that the combined impact of Covid-19 and subsequent quantitative easing measures have compounded a number of the world’s major currencies, in the form of both significant price drops and restricted growth ranges.
However, the underlying strength and relative safe haven status of the U.S. Dollar has helped the greenback to largely buck this trend, as it continues to make significant gains against various baskets of advanced and developing currencies.
Central banking policies have certainly played a pivotal role in the performance of the NZD/USD, which sank to 0.600 levels towards the end of last week.
Almost every forex trader had forecast this after the pairing dropped to 0.698 at the beginning of last week, with the New Zealand government’s decision to double its quantitative easing program and countenance adopting negative rates if necessary cited as the primary reasons for this.
This is typical of the real-time market, with currencies such as the greenback and relative safe haven pairings like the USD/JPY offering the best value as the coronavirus pandemic continues to wreak havoc.
These and similar trends are also likely to continue over time, while the EUR/CAD pairing may also offer value to forex investors with a long-term outlook. Much of this has much to do with the oil-sensitive nature of the Canadian dollar and the recent collapse of the Brent and Crude markets; as while the price of oil has staged a modest recovery of late, prices remain anchored around the $30 mark.
The greenback should also dominate your thinking from a long-term perspective, with analysis telling us that the USD is most likely to extend its gains against the Brazilian real and the South African rand throughout 2020 and beyond.