With debt levels continuing to rise and a borderline satirical start to 2020 geopolitics, global currency risk looks bleak going into the decade ahead. Ironically, one of the most stable currencies currently, the USD, would be at the core of a catastrophe in the event of another debt crisis, which speculators believe is possible. Whilst some of the most politically stable countries, such as central Europe, are going to have to endure a disruptive British departure from the European Union. Here are 5 significant economic events that impact currencies in 2020, and the 5 riskiest currencies as a result.
1. Brexit actually happened! With the transition period ending a day before 2021.
2. Presidential elections in the US, with a potentially contested result if Trump wins
3. US-China continue to decouple
4. Climate change and fires continue in Australia
5. Growing political unrest in Latin America
There has been an onslaught of investment banks coming out to forecast the fall of the US dollar in 2020, leading to less activity for the top 10 money transfer companies from USA based clients. Initially, this seems surprising: the economy is fairly steady and interest rates remain stable. So, the US dollar is forecast to fall slightly, but that is under the best-case scenario. Of course, the general election will throw up some surprises, lawsuits and a potential political vacuum. Of course, the trade war with China continues and abrasive, controversial intervention in the middle east may also result in currency swings.
The Yuan is rarely seen as a risky country, and politics here doesn’t don’t always reflect in the foreign exchange rates. This is arguable because the government expends a ton of effort to keep it stable (and in the accusatory words of Trump, “manipulate it”). Regardless, China is struggling. GDP growth has slowed down significantly, the decoupling continues with America and there’s even a coronavirus outbreak which could cause further slowdown regional economies due to being in lockdown.
Considering Brexit was only last week, the sterling hasn’t taken much of a hit. Why? Because it was expected, and markets had adjusted for it a long time back. But now the transition period has begun, deals need to be made before Britain runs out of track by December 31st. As we approach closer to this time, uncertainty will be back on the minds of the public and investors, and the pound could be utterly unpredictable. Having a strong deal could even see a rise to the GBP, but a lacklustre one could send it into temporary freefall.
The Euro has been in steady decline for two years now against the US dollar, and it continues to unimpress. Whilst Britain’s departure is cause for worry for the pound, it’s also going to impact the Euro. Even worse, it’s bringing about doubt to the EU project, with many European countries growing a rising distrust in its federalisation. Morgan Stanley, however, is tipping the Euro to rally against the USD in 2020, so it’s possible that the Euro is hit much less than its highly-traded counterparts, meaning it may perform well in relative terms.
Latin America is going through turbulent times. With low growth, extremists gaining power and growing corruption, many currencies are seeing downward pressure. Other than of the well-documented fall of Venezuela, Argentina has the bleakest outlook on 2020 with forecast -2.6% growth. The Argentine Peso collapsed in August 2019 and continues to decline against the US dollar. The 2020 budget predicts the exchange rate will weaken from 48 pesos/USD to 67.