What is expected in the foreign exchange market in 2021?

An overview on what to expect in the foreign exchange market this year

The market has undergone some notable transformations. It is one of the largest financial markets with a daily volume of around 2.4 quadrillions. Here, numerous global currencies are traded every second. Typically, the market works on international trade among nations. The deadly pandemic COVID 19 has upset the worldwide economies and left some serious impact on foreign exchange trading. It has imbibed plenty of disruptions and uncertainty in trade and raised isolation. But, the economies are heading towards recovery, so is the forex market. So, where will the forex market reach in 2021？ Let's see.

Forex market outlook for 2021

As pandemic proceeds to capture global economies, investors are looking for new market and trading opportunities. Though a sharp decline in the volatility to some points is expected, the currency exchange rates will continue to react to shock. It will surge both the risks in forex trading and potential trading opportunities.

Some specific patterns which were visible in 2020 will possibly continue in this year as well. This will surge volatility concerning control of the COVID 19. Nevertheless, policy formulators are actively considering inflation and growth to mitigate public debt pressure. One of the most important takeaways from the last year has been not to go with a risky investment.

As per some analysts, the forex market may be highly volatile and betting on currency pairs that are too unpredictable might land you risk. Investors and industry professionals will mainly invest in safe currencies, which have remained notably profit-generating even during the disruption.

The pressure on the United States dollar will continue, and its price may show a sharp decline of about five to ten or more than this. However, it will not touch the level of 2008. The major reason behind this is American President Joe Bide. He will fall back on rule-based international trade order with steady global growth. The year ended with a strong Australian dollar. Hence, it will be a safe currency to invest in, owing to domestic interest rates, which will not be satisfactory in some developed counties.

The pressure on the United Kingdom pound may continue. It is the outcome of the slow recovery rate and the rigid and complete lockdown measure imposed by the country to suppress the new variant of COVID. Concerning the Canadian Dollar, despite enduring the more massive and second wave of COVID, it may show a favourable price rise as the condition stabilised to a significant extent in December.

For the Euro, the COVID 19 proved firm support as investors worldwide turned their attention toward the United States dollar's major problems. Thus, the Euro may show a significant rise. The detailed price analysis of three major pairs is discussed in the next session of this report.

Where will the major currency pairs move？

1) The United States Dollar

The United States dollar has been the most popular investment choice worldwide. However, this currency was hit hard and came under pressure due to the spread of coronavirus and the initiation of two stimulus packages to bring back the economy on track.

The United States greenback index that is mainly employed for measuring the greenback value against a broad basket of currencies has outlined this course while losing notable ground as emerging currencies soared and Fed slashed rates.

The pressure continued, and the United States Dollar Index collapsed from 103 points in March to about 90 by closing the year. However, the financial market's consent is that the Dollar will bounce in the second half after a further drop in quarter one and quarter 2 of 2021. The factors that will push this surge are an increase in base interest rates and global economic recovery.

2) The British Pound

While the American Dollar may be the most dominant currency for the forex market players, the GBP or British pound also hold a strong position in the world's most traded currency pairs. This currency, too, faced the turbulence of 2020. It traded at a depreciating value against the coronavirus and backdrop of Brexit. While in the former's case, a no-deal scenario was averted, the United Kingdom has yet to uncover a contract on services. This factor will cause a decline in the price of GBP further in the next eleven months.

Concerning this, the current surge in the GBP/USD pair may give a slight relief for traders, with the bullish market trend accompanied by the Brexit trade contract now starting to disappear. So, the United Kingdom economy and the fundamental outlook for GBP remains comparatively bleak for the first six months of 2021. Simultaneously, the USD/GBP pair will only turn bullish if the Dollar weakens further in the future.

3) The Australian Dollar

Unlike other competitors, the AUD or Australian Dollar ended on a happy note in the year 2020 because the commodity sector, mainly iron ore, flourished, and China proceeded with its better than anticipated economic recovery in the fourth quarter. Remember that the commodity-driven economy of Australia largely depends on the sale of iron to China. The trading correlation between these two large counties is continuing to earn notable momentum on the board.

On the other hand, the Australian Dollar escaped the Reserve Banks' worst excesses of Australia's dovish policy. It is mainly since other central banks worldwide utilised an identical approach. The overall outlook for the Australian Dollar finally remains positive. However, the deterioration could undermine this in trading agreements with China and further interruption in iron ore supply and sale.

Forex exchange market forecast

The Bottom Line

No one can accurately anticipate where the forex market will reach in 2021 as tables can turn anytime. Maybe the economies could be hit worse by the resurgence of coronavirus, declining the currencies. However, the market is not completely dark, as 2020 gave us a firm lesson to presume the worst and be prepared.

Hence, we can still make several predictions about what will come by tracking currency developments. It will prepare traders for the potential consequences. Even border and political expansions will impact the current prices of various currencies. T1markets provides the best analytical and research tools for market predictions.

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