As countries all over the world struggled with the coronavirus pandemic, so have their economies.
In attempts to contain the pandemic, economic activity all over the world has come to an abrupt stop, and the results have been severe.
Economic experts consider the repercussions of the coronavirus pandemic to exceed those of the 2008 global financial crisis and even the Great Depression. Just as the world’s economies took one hit after another during this pandemic, so have its currencies. This unprecedented crisis has shocked global currency markets, making foreign exchange a volatile trade and making it difficult to predict what will happen to them this coming year.
Here is how the coronavirus pandemic has hit world currencies up until now.
To contain the pandemic, many world leaders ran to enforce their own version of a lockdown. For many countries, this meant limiting their populace to their homes and limiting services once made available to them. This sudden change created a simultaneous shock to both supply and demand. Looking beyond the lockdown world officials enforced, public fear of the unknown caused many people to enforce stricter protocols on themselves.
Goods and services consumers could no longer access, such as those offered by the tourism and hospitality industries, became redundant; even public transportation at some point was almost unnecessary. Particularly at the start of the pandemic, goods, and services that were still available via shipping were not at the top of the average consumer’s mind. Demand for many markets was at an all-time low.
Similarly, supply was not doing much better either, as global supply chains were continuously disrupted. It appeared that the stricter the lockdown, the greater the economic downfall, and the worse off currencies became. Of course, the extent of the damage done was directly tied to how strong a country’s economy was, to begin with.
While the activity of many businesses was reduced to a halt, so did the employment of many of their employees. Even businesses that were still operating could not handle the economic strain and were forced to let many people go. Unemployment rates were soaring, and the job loss was mounting higher and higher still, potentially worse than previous global crises. Purchasing power was stripped from consumers and businesses alike. Many countries witnessed a decline in their consumer-price index as a result, leading to more unpredictable currency trends.
Stock Market Impact
Another contributor to global currency is the stock market. Global stock markets have dramatically declined as a result of the pandemic, heavily impacting world currencies. Since experts believe that these effects are a result of ‘risk-off’ trading patterns, they also believe that the impact is only in the short-term. This is evident in how moments of ‘optimism’ concerning the pandemic seem to have driven improvements in the overall performance of the stock market. It appears that emotion, as opposed to hard data, has been driving the stock market, and by extension the global currency market.
Safe Haven Currencies
In the face of the economic crisis, which accompanies the coronavirus pandemic, many have rushed to secure assets considered to be risk-averse. The trend which appeared during the pandemic seemed to favor the Japanese yen, the Swiss franc, and the United States dollar as ‘safe haven’ currencies. Where currencies were concerned, the Swiss franc appeared to have had the most to gain. The historical data from ExchangeRates.org.uk illustrates how the Swiss franc has appreciated against many currencies, including the United States dollar. However, that is not to say that the United States dollar did not maintain its dominance, which some experts believe may augment the impact of the pandemic, due to its effect on trade and finance.
Some currencies, unfortunately, got the shorter end of the stick during the coronavirus pandemic. This can be particularly said of oil-sensitive currencies such as the Norwegian krone and the Canadian dollar. For the first time in history, crude oil prices plummeted below zero. Negative oil prices were a result of full inventories and storage, and very little demand. Naturally, other commodity currencies also witnessed depreciation and substantial losses.
The coronavirus pandemic has been a time of great loss for most currencies and gain for a lucky few. It is unclear how world economies and their respective currencies will fare once the pandemic comes to a resolve. But as the world embraces its’ ‘new normal’ and markets begin to emerge, one can only ask, what will become of the global currency market?