Back in January last year, the emergence of Covid-19 in Wuhan seemed little more than an isolated and relatively contained virus outbreak. After all, it wasn’t until March 11th that the World Health Organisation (WHO) declared coronavirus as a global pandemic, with the subsequent eight weeks seeing considerable socio-economic upheaval worldwide.
This has definitely changed the course of the financial market and various asset classes, with a number of sensible predictions for the foreign exchange and wider economy in 2020 having been undermined (and in some cases derailed) by the impact of Covid-19.
In this post, we’ll take a look at some of these forecasts in more detail, while asking how the global pandemic has impacted on this.
1. Getting Brexit Done – But at What Cost?
Back in January 2020, the pound had already lost some of its so-called ‘Boris bounce’, following the landslide election victory by the Tories in December.
The PMs’ refusal to even countenance extending the EU trade talks beyond December 31st this year played a key role in the subsequent decline of the pound, with a number of commentators in the single bloc suggesting that more time would be required to strike an amicable agreement.
The sustained decline of the GBP/EUR was expected to extend throughout 2020, while some argued that such losses would also be compounded as the coronavirus outbreak began to rip through the continent. However, the reverse has actually been the case, with the pound to Euro exchange rate recently soaring to a four-week high in the market.
It’s largely thought that this is the result of the pound starting to benefit from a broad-based improvement in risk-appetite, particularly as investors continue to monitor the monetary impact of Covid-19 through brokerage sites like Oanda. However, parity may well be restored if a deal can’t be agreed and the UK is ultimately faced with the prospect of a disorderly, no-deal exit.
2. Growth or Recession – We Now have Our Answer?
Another key talking point at the turn of the year was whether or not we would see a recession in 2020 and 2021, as the growing fears of a global financial crash during the second half of 2019 were partially quelled by the decision of central banks to slash base rates and stimulate growth.
While the latter quantitative easing measures and the initial progress made in trade negotiations between the U.S. and China raised hopes of global economic growth at the beginning of Q1, however, the global pandemic has dashed this sense of optimism and left the world on the brink of a recession.
In fact, the IMF called the onset of a global recession at the end of March, while the UK alone saw its economic output slashed by 15% during the second quarter of 2020 alone.
So, all that’s left to determine is the extent of the recession and just how long it will take developed and emerging economies to ultimately recover.
3. The Rise of Cryptocurrency – Has Covid Stopped this Charge?
It was widely anticipated that 2021 would see the mainstream growth and widespread regulation of cryptocurrency, but has the Covid-19 outbreak actively supported or undermined this trend?
The early evidence suggests that cryptocurrency has remained largely impervious to the socio-economic impact of coronavirus, shifting the balance of the global crypto market and highlighting a potential asset class that could emerge as a viable safe haven in 2021.
For example, the Hong Kong authorities recently approved its first cryptocurrency fund, which has established an initial target to the tune of $100 million.
This represents a significant breakthrough that puts Asia at the forefront of the crypto market, while also attracting the attention of investors from across the globe.