Due to the coronavirus crisis, 2020 saw some miracles in the capital markets, with some products reaching unprecedented highs or lows. It was also a hectic year in the foreign exchange market, and currencies that we would not have expected before had also suffered from the crisis.
One such currency that came as a surprise to many was the U.S. dollar, which has often served as a refuge in times of crisis. For example, U.S. bonds are a popular way of investing the money of those looking for a safe haven. The fall of the dollar was perhaps the most important event in international foreign exchange markets, writes 24.hu.
There is, of course, a logical reason for this, most notably that the amount of money in circulation and the budget deficit increased the most perhaps in the United States. Meanwhile, interest rates and yields on government securities are also kept low by the Fed, the central bank of the US, and the market. So, it is no wonder the so-called dollar index (DXY) fell more than seven per cent last year. This represents the value of the US dollar relative to a basket of foreign currencies.
The euro saw some strengthening last year, with the euro index (EXY) rising 11.7 per cent over the year. It is therefore not surprising that only a few currencies managed to strengthen against the euro. Many currencies depreciated in double-digit percentages compared to the single European currency.
The weakest link proved to be the currencies of countries with either very high inflation or very high raw material exposure, or maybe both. An example is the Argentine peso, of which 54 per cent more had to be given for one euro at the end of the year than at the beginning of the year.
Among the highly weakening currencies is the Brazilian real, which may be due to the country’s strong exposure to raw materials, such as crude oil or the ethanol (and sugar) used to replace it. In addition, the country has been thoroughly affected by the coronavirus, as it is one of the most infected areas. In the next place is the Turkish lira, which is also burdened with high inflation, a slow economy, and a number of political problems.
As for the forint, it was the weakest currency in the Central and Eastern European region, with 9.5 per cent more forint having to be given for one euro at the end of the year than a year earlier.
The peak was almost HUF 370 for one euro.
The Polish zloty depreciated by only about seven per cent, the Czech koruna by three, and the more actively managed Romanian lei by less than two per cent.