The global COVID-19 pandemic has had indelible effects on nearly every aspect of our lives. The pandemic has caused governments to place people in quarantine and issue stay-at-home orders. It has canceled public events, closed offices and restaurants, and devastated the entertainment industry. Huge corporations have had to close their manufacturing facilities in the U.S. and abroad, particularly in China. Travel between countries was brought to a standstill.
COVID has also had a forceful impact on the financial markets, including forex. As various nations struggled with the best ways to manage their population’s risk of contracting the disease, markets became volatile.
While volatility can mean that traders lose money, it is one of the ways in which forex traders succeed. Smart forex traders know when to buy low and sell high, multiplying their profits. The trick is to stay abreast of each country’s economic indicators and understand how each economy works from the inside.
Funding Talent explores the global effect of the novel coronavirus on world financial markets, explaining how various economic indicators affect the forex market.
COVID’s Effects on the Market
The profound effect that the coronavirus has had on the global economy, including the forex market, will be with us for quite some time to come. In the United States, the unemployment rate has risen above the levels seen during the recession of 2008. This has caused investors to look toward the dollar for stability and a safe-haven currency.
The current swings in dollar demand are driven by short-term concerns, which do not account for the impact of long-term factors like mass unemployment and government borrowing.
Many forex experts have taken a cautious, bullish view of the markets, believing that there is room for growth and improvement. The health crisis itself is ongoing, but the stock markets and other economic indicators have rebounded even as unemployment has remained high.
The Strength of the Dollar Index
U.S. equities, interest rates, and unemployment are all data points that should be considered by forex traders. Looking in detail at these numbers, the dollar has stayed strong since traders around the world are looking for safe-haven currencies. The Swiss franc and Japanese yen have also been popular, together with gold.
Effects on Other World Currencies
The ripple effect caused by closures in China in the early months of 2020 had a severe impact on many global currencies. Countries that did a great deal of business with China and claimed the country as one of their major export markets were left holding the bag. This includes countries like Germany, where the car industry was put into a tough position when they could not export cars to China.
The Euro has been more heavily impacted by the coronavirus than the U.S. dollar and the Japanese yen. The Eurozone has stronger economic ties to China, and the economy was already in a fragile state before the coronavirus struck.
Currencies that have struggled in this environment include commodity-based currencies like the Canadian dollar. Low oil prices are having a serious impact on the Canadian dollar, as is restricted trade with China.
In other countries with a serious level of dependence on tourism, a lack of visitors has caused depressed economic activity. This is particularly true in Australia, where the economy was already reeling from the effects of 2019’s massive wildfires. New Zealand has also seen economic effects from a lack of tourism, though this country has largely been able to manage its battle with the coronavirus itself.
Future Outlook for the Forex Market
It is difficult to say exactly what will happen to the forex markets in a post-COVID world. After the much-touted vaccines are approved and distributed throughout the world sometime in 2021, it is likely that we will return to some semblance of normalcy. Unemployment should be lower, though many industries such as the restaurant and service industries may have a severely lagged recovery.
Many economic experts believe that there may be a partial recovery in the later months of 2020 and the early months of 2021, trading on the possibility of an approved vaccine and the presence of pent-up demand in the system. The United States in particular is watching the retail sales figures from the holiday shopping season and hoping that they can restore some life to retail stocks.
Members of companies such as Funding Talent have the unique ability to share information with each other thus helping predict patterns in currency value. Having a balanced view of global economic indicators with a worldwide network of traders means that they can sometimes predict swings before they happen. Funding Talent is always looking for skilled traders who can use their skill and passion for trading to join their 6,000 traders worldwide.
The company will continue to keep an eye on the volatile forex market, judging when it is best to make a move and reap the unexpected benefits of the pandemic.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes