What Is The Condition Of The Foreign Exchange Market In 2021?

The coronavirus epidemic has had a significant influence on the foreign exchange market this year. Rather than specific fundamentals, currencies were frequently purchased and sold based on traders’ desire to expand or decrease their exposure to risky assets. 

Although the pandemic will remain a key influence in 2021, traders’ emphasis will gradually turn to specific fundamentals. So If you want to send money to India or any other country, you must understand the foreign exchange market in 2021.

Investors are searching for fresh markets and trading possibilities as the epidemic spread around the globe. While a dramatic drop in volatility is predicted at some times, currency exchange rates will continue to react to shock.

It will increase both the dangers and possible trading possibilities in forex trading.

The dollar of the United States of America

The US Dollar Index, which measures the US dollar value against a basket of currencies, lost a lot of ground in 2020 as the Federal Reserve lowered rates and the US government pumped money into the economy in record amounts.

The US Dollar Index has dropped below the 90 levels after reaching a high of 103 in March. The US Dollar Index made only one meaningful attempt to recover on its way down in September.

  • British Pound

The major danger for the GBP/USD was not materialized because the EU and the UK recently finished negotiating the Brexit trade deal.

GBP/USD has been trending higher in recent months as traders bet on the success of Brexit negotiations (and these bets paid off), but now traders will need to find new reasons to be positive on the pound.

The United Kingdom is currently struggling to contain a new strain of coronavirus, which might put a further burden on the country’s economy. Furthermore, the economy may be harmed by Brexit, albeit the impact would be less severe than in a no-deal exit.

Euro

After the year, the European currency exhibited significant strength. Because of the European Central Bank’s dovish policies and dismal growth rates in the Euro Area, the EUR/USD has been under pressure in recent years.

On the other hand, the epidemic offered substantial support for the euro as traders focused their attention on the US dollar’s woes. The major question for EUR/USD in 2021 is whether it can settle above the 2018 highs of 1.2500.

While the ECB may be unhappy by the recent increase in the euro’s value, which will put further strain on economic development, there is nothing it can do to prevent the euro from rising further.

The Canadian Dollar (CAD)

The Bank of Canada, like other major central banks, will be compelled to offer tangible assistance to the economy until inflation begins to show signs of life. Although the situation has calmed in December, Canada is also affected by the second wave of the virus. It’s unclear whether this second wave will put further strain on the Canadian economy.

Oil price movements will continue to be a major driver of USD/CAD in 2021. Commodity-related currencies, such as the Canadian dollar, will benefit if WTI oil manages to settle above $50 and acquire more upside momentum.

India needs foreign exchange buffer reserves

Former RBI Governor Raghuram Rajan said India needs foreign exchange buffer reserves to protect itself from exchange rate volatility since it has “no allies” for swap lines. Japan was the only country that assisted during the taper tantrum in 2013. 

During a virtual session hosted by economic think tank NCAER, Rajan claimed that during the 2013 taper tantrum, India requested swap lines, and the only country that assisted was Japan.

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  • Ace money transfer
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  • Western Union 
  • MoneyGram
  • PayPal

Conclusion

This year has been fascinating for foreign exchange market traders, and the coming year is expected to be even more so.

The market’s emphasis will be on the destiny of the US dollar, which may come under further pressure if the Fed continues to pump money. At the same time, the global economy recovers from the pandemic’s blow.

It would be fascinating to watch if the British pound can maintain its upward trend now that Britain has successfully struck a trade deal with the EU.