Forex Blog: Analysis of Major Currencies in 2020 and Expectations for 2021


Analysis of USD, EUR and GBP Currencies in 2020 and what to expect in 2021

2020 was a year of great volatility for the Forex Market.
This turmoil was mainly caused by the economic impact of the Covid-19 pandemic, although other factors, such as Brexit and the continuing tariff impasse between the United States and China, contributed.
This article looks at how the world's major currencies fared over the past year and how the situation is heading for the new year 2021.

 Forex Covid-19

 

USD - United States Dollar

In early 2020, it looked like nothing could stop the powerful dollar from marching, which had been strong for the past two years. Even when the coronavirus spread to Europe and devastated Italy and Spain in February, investor faith in the US dollar was not affected. After all, the American economy was booming and investors migrated to the dollar when the rest of the world faced uncertainty, as is often the case, since it is one of the most common assets considered a safe haven.


However, everything changed in March, when investors began to realize what the White House's response to the pandemic was like, including minimizing its severity and criticizing state blockages and restrictions as cases and deaths increased across the country. The dollar started to fall as investors fled it into the arms of other assets, such as Gold (XAU), which rose from $ 1.619 on March 1 to $ 1.981 on July 1. In the same period, the US DXY index, which shows the value of the US dollar against the six major currencies, dropped from 98 to 96. On December 1, it fell further to 90.


Market commentators predict further declines for the US dollar in the first quarter of 2021. While other countries are also employing a quantitative easing program, none is "printing money" in relation to the size of its economy, like the United States. For investors, this essentially means that the dollar is held against other currencies. When combined with the near-zero interest rates to which the Federal Reserve is bound for the foreseeable future, the dollar is seen as an unattractive asset to invest in.

 

EUR - Euro

Like the dollar, the pandemic shaped the euro's fortunes in 2020.
While the first wave of the pandemic hit Europe hard, the European Union's response was decisive. The EU has agreed to a historic $ 750 billion pandemic emergency rescue fund and its member states have largely reduced the death rate over the year, usually as a result of strict measures, including total and partial blockages and touches to collect across the country.

The European response, coupled with investors' loss of faith in the management of the pandemic by the US government, led to a steady increase in the EUR / USD exchange rate throughout the year. It rose from 1,06 on 18 March to 1,21 on 8 December, its highest rate in more than two and a half years.

Analysts predict that the EUR / USD rate will continue to hover around its current rate. Bank of America predicts trading levels of 1,20 in early 2021, moving to 1,25 in the fourth quarter. Meanwhile, Julius Baer sees an increase from 1,20 to 1,24 over 2021.

 

GBP - British Pound

The GBPUSD exchange rate started the year at 1,32. Although not as pronounced as President Trump's approach to the pandemic, UK Prime Minister Boris Johnson was seen as taking a playful approach to the virus earlier in the year, apparently preferring a "herd mentality" approach instead to implement restrictions and boast of shaking hands with Covid-19 patients in a hospital in early March, before being admitted to the ICU with the virus.
The British government's handling of the pandemic quickly propelled the UK to become the country with the worst excessive death rate in Europe.

As well as the loss of investor confidence in the US dollar, they quickly lost faith in the outlook for the UK economy and also for the pound sterling. The currency fell from 1,31 on 8 March to an annual low of 1,14, just 11 days later, on 19 March, as the magnitude of the pandemic's impact on the British economy became clearer. The UK's decision to be the first country in the world to start launching a clinically approved vaccine in December led to a strengthening of the currency against the dollar, trading between 1,32 and 1,34 during much of November and December. However, the development of GBP / EUR in 2020 took a different course.

The pound-to-euro rate fell from 1,17 January and an annual high of 1,19 in February to an annual low of 1,08 in September.
In early December, it traded steadily at around 1,10, although its forecast for 2021 depends heavily on how the Brexit negotiations will be concluded. If the UK and the EU fail to reach a favorable agreement, analysts predict that the British currency could fall to 0,95 against the Ruro, while an agreement is likely to continue until 2021 being traded between 1,10, 1,11 and XNUMX.

 

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