As we approach the second half of 2020, it’s fair to surmise that the year to date has seen economies across the globe deal with almost unprecedented socio-economic challenges. Many of these were in existence prior to the start of the year, of course, with the COVID-19 pandemic having exacerbated them and accelerated economic decline throughout the world.
This has certainly had an impact on the financial market, with share prices tumbling and national currencies being undermined by quantitative easing measures and reduced base interest rates.
But what exactly does the remainder of 2020 have in store for the forex market, and how can traders look to plot a path towards growth in the current climate?
1. The Fallout from Covid-19 Will Largely Continue Through 2021
The weakening of global currencies has been a worldwide trend throughout 2020 so far, and there’s no sign of this abating in the near-term. The reason for this is simple; as the majority of governments have deployed quantitative easing measures as a way of minimizing the financial impact of Covid-19, which means retaining low-interest rates and more competitive exports.
This is definitely the case in Vietnam, where the central bank has already expressed its preference for maintaining a weaker currency as a way of supporting competitive exports (which are crucial to the nation’s economy). Of course, this will mean weaker capital inflows from overseas, as the demand for the Vietnamese dong continues to fall incrementally.
Conversely, Vietnamese stocks have performed relatively well during the first half of 2020, and while growth has so far slowed to 2.7% this year, current forecasts estimate that this could increase to a healthy 7% in 2021.
With this in mind, stocks arguably offer greater value for investors targeting Asia for the remainder of 2020, with forex trading becoming more lucrative once again next year.
2. The Presidential Election
In the current quarter, the US is expected to record its largest economic decline on record, and this only serves to highlight the importance of this November’s upcoming election.
This will serve as a blow to President Trump, who would have looked to leverage the relative growth of the US economy and the greenback prior to 2020 as a key part of his election strategy. This issue is also compounded by the current polling, which although often unreliable has Democrat candidate Joe Biden ahead in almost every state and metric.
If Biden’s election does come to pass, it’s likely that the financial markets will react well, with the currency expected to enjoy a surge during the final quarter and well into 2021.
The reason for this is simple; as Biden represents a more stable and statesman-like choice for the electorate, whereas Trump’s unorthodox, combative and often unpredictable politics tend to create significant market volatility.
3. Brexit, Brexit, Brexit – Where Will it End?
Ever since the Brexit vote in 2016, the pound has continued to trade in an ever-depreciating range against both the dollar and the Euro. The GBP has also experienced marked volatility against the greenback of late, falling to noticeable lows on a frequent basis.
Most recently, the GBP dropped sharply against an entire basket of currencies following chief negotiator David Frost’s comments to MPs on the stalling nature of talks.
The options market also continues to hit at heavy and sustained volatility for the GBP in June, during which time all EU leaders will meet to discuss the real-time progress of talks and issue their expectations for the near-term.
Traders are therefore likely to hedge against the pound as 2020 progresses, with further GBP losses likely as the trade talk deadline of December 31st and a potential no-deal Brexit inch closer later in the year.