The pandemic had a large impact on the foreign exchange market in 2020. Although the crisis will continue to be a factor in 2021, individual fundamentals will increase in importance. The U.S. Dollar Index lost plenty of ground in 2020 and the consensus is that it will fall further in 2021. The British Pound is currently subject to worries about Brexit and a new strain of coronavirus. Meanwhile, the Euro has benefitted from concerns about the U.S. Dollar, and the European Central Bank cannot do much more to stop it from moving higher. Finally, the Australian and Canadian Dollars both will enjoy more support if economic growth boosts demand for commodities.
- The U.S. Dollar declined in 2020 and may have room to fall further.
- In the UK, Brexit and new a coronavirus strain could put pressure on GBP/USD.
- The Australian and Canadian dollars may continue to grow as demand for commodities increases
“Currencies were often bought and sold based on traders’ desire to increase or decrease their exposure to riskier assets rather than on individual fundamentals.”