Home News The impact of Covid-19 on Forex

The impact of Covid-19 on Forex

At its core, coronavirus is a global health pandemic that has seen more than 8 million cases across the globe, while we’ve also seen in excess of 457,000 deaths as of June 19th.

However, as the spread of the virus begins to slow down in Europe and Asia (although not in North, South, or Central America), thoughts are now beginning to turn to the socio-economic impact of the pandemic.

In this article, we’ll explore the impact of Covid-19 on the forex market and currency values, while asking what the second half of 2020 could have in store.

Appraising the Impact of Coronavirus on Currency so Far

In many ways, the dollar has become increasingly dominant in the forex market during the coronavirus outbreak, but this trend has become to reverse of late as North, Central, and South America has emerged as the new epicenters of the outbreak.

Make no mistake; the greenback has experienced sharp contractions over the course of the last week or so, and while it recouped some of these losses on Thursday following the intervention of the Federal Reserve (which according to Oanda analyst Craig Erlam snapped up corporate bonds as a way of settling the market’s uncertainty), this is only likely to provide short-term relief.

The reason for this is simple; as the main issue facing the dollar (aside from the ongoing impact of Covid-19) is that the government continues to invest in quantitative easing measures that temporarily reinforce the economy at the expense of base interest rates and the currency’s valuation.

This is something that continues to impact on all major currencies, and while the USD may have struggled more recently, it has continually outperformed major rivals such as the GBP and the Euro during Q2.

The pound continues to slump against both the Euro and the greenback, for example, and while this is also linked to the uncertainty created by Brexit, it’s fundamentally underpinned by a base interest rate of 0.10% and a potential decline of 35% in economic output in 2020.

What’s the Outlook for the Future?

Interestingly, this week also saw the UK’s debt exceed 100% of the nation’s GDP for the first time since 1963, and this trend will become increasingly prevalent across the globe in the near-term.

This issue is being compounded by the job losses and high levels of unemployment caused by Covid-19 lockdown measures, and with many nations entering negative growth territory we should expect both base interest rates and currency values to remain noticeably low throughout the second half of 2020 and beyond.

Of course, there’s an inverse link between the price of the USD and oil, and this could also shape the market and various currency pairings in the remainder 2020.

Take the EUR/USD, for example, which has historically declined in value during periods of oil price depreciation and the ongoing issue of a severe imbalance between supply and demand within the industry.

This trend is also being borne out in the current market, with the Euro sluggish against the dollar as crude oil prices struggle to rebound from record lows. Sure, this trend is also being exacerbated by Brexit, but the good is that this type of trend may offer an opportunity for investors to profit in a strained and volatile marketplace.

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Mary nurses a deep passion for any kind of technical or technological happenings all around the globe. She is currently putting up in Miami. Internet is her forte and writing articles on the net for modern day technological wonders are her only hobby. You can find her at mary@pc-tablet.com.