Forex 2021 outlook – pandemic era
The global events that are happening all over the world have a very significant impact on many industries. Trade wars, the growing influence of dictatorships or political parties has a direct influence on the financial market and its own agenda, as they are the ones that change the activities and relationships between the countries. It is quite vivid that the counties that are having some problematic political relationships, will most likely restrict economic dependence on each other, in order not to be used as political leverage from one side to another.
In 2020 we faced a problem that was not known to us before and the uniqueness of the process makes us react very differently and strictly. The whole world was in lockdown due to the Covid-19, international flights were canceled, people were staying at home even for work, and many businesses were forced to stop their activities. This is why the pandemic had a great impact on the economy as well as created a new dimension for the analysis of the global markets.
Volatility and Uncertainty
The global financial economy is trying to reopen right now, as the pandemic period is expected to ease due to the vaccine rollout. It caused problems for the economies, technology, and even in the infrastructure worldwide. More than 90% of countries could experience the annual economic recession while the situation for the emerging market was even worth it, leaving them without growth during the whole year. Even though we are facing the period right now, that the vaccines are ready and the vaccination process is going at a high speed, we still cannot name the exact time and date when the global economy will be able to fully recover from this crisis.
If you take a close look at the exchange rates, it is quite clear that the volatility is the main characteristic recently, as the companies are not fully going back to the norm that they had created in the pre-pandemic period, but they try to settle the new reality, whatever will be profitable for their businesses, this is why the currency fluctuations still remain quite reasonable.
Challenges for the GBP, USD, EUR, and AUD
The US interest rates were characterized as high during the several years. Now, it is very close to almost zero. The dollar was keeping its low trace for quite some time already, but as the global appetite is increasing already due to the economic reopen, the capitals are moving from the safer investment, the USD, into riskier investments, such as stocks, bonds, commodity currencies, etc.
This means that the dollar is facing the weakening trends that will cause the GBP/USD rate to press into higher numbers, $1.30. Also, the negative interest rate policy still remains to be very active in the UK, and cut limits also play an important role in the currency exchange rate.
In the case of the GBP/EUR exchange rate, it is also dependent on how successful the economic recovery from the financial crisis will be. It is also interesting to observe whether Europe and the UK will have different recovery speeds or not. The real impact of the covid 19 will be visible only after 2021 or in the following years, because during the pandemic period, the policymakers executed efficient support to protect jobs and help businesses to survive bankruptcy. The conditions were also expected to be changed due to the Brexit deal, however, as a result, it appeared the GDP was stronger than anyone could have expected.
The covid-19 had an impact on the Australian dollar as well. The trajectory is still dependent on the process and how the economic recovery will continue. Historically, it’s been a case that AUD usually outperforms the pound during the periods when those who are facing economic recovery, right now the citation might seem to be pretty similar.
Preparation
While the economic future is still vague and we cannot exactly calculate the recovery period or the damage that has been done to the economy, we cannot say what will be effective forex risk management. The important thing is the profits from the FX market to remain the same even during the fluctuations. The future scenario is impossible for the companies to imagine, the testing still remains to be a very important tool while navigating with the currency volatility.
It is important in 2021, the decision-makers who are involved in the business to use the hedging strategy development, to make sure that the FX risk management is working accordingly. Risk management is working more efficiently when the thing is all about the economy but when the processes such as health problems and global pandemic come on the way, it is difficult to make sure whether the steps made by the company are correct or not. For example, during the pandemic, the whole world faced several waves of the pandemic, when the first lockdown stopped and the economy started to recover, then the second wave hit, this is what we mean it is difficult to make the exact forecast about the future, especially when it comes to the economy.
