The forex market has always been a fascinating entity, and one that’s hugely appealing to traders from across the globe. Of course, the sheer size of the market is one of the main reasons behind this, with the total value of the sector thought to be more than 2.5x the size of the global GDP.
An estimated $6.6 trillion is also traded globally every single day here, with this highlighting the immense appeal of the market and its potential to deliver significant returns in a relatively short period of time.
Interestingly, the forex market has also seen sustained growth during the coronavirus pandemic, as the world’s socio-economic and geopolitical climate has become increasingly volatile. So, what trends will continue to define the marketplace and provide an opportunity to traders across the board?
1. Biden’s Election
While Joe Biden has yet to have his recent US election win confirmed, this is increasingly looking like a formality that will become reality when the college electors meet on December 14th (despite the desperate attempts of Donald Trump to subvert democracy).
Although many will see this as a positive step for the US and the global economy, there’s reason to believe that it will also cause the value of the USD to depreciate in the near-term. This is partly due to the uncertainty caused by transition, of course, although it’s also thought that Trump’s protectionist policies helped to boost the greenback and the value of US exports.
With this in mind, the government and Bank of Japan is thought to be keeping a close eye on foreign exchange rates in the wake of Biden’s win, as a decline in the USD will cause the Japanese yen and similar currencies to rise against the greenback.
This could cause Japanese exporters harm and make their products less competitive overseas, with this trend likely to be replicated across a raft of other major currencies such as Canada, the UK and those in Europe. This could ultimately weaken the global economy at a time when it’s already being impacted adversely by the coronavirus pandemic.
2. The End of Trump and the Chinese Yuan
Interestingly, the Chinese yuan currency is one that’s expected to benefit from a Biden win, or more specifically the removal of Donald Trump from the Oval Office.
Of course, the yuan-dollar exchange rate fluctuated wildly in the wake of the US Presidential election, but it ended on an impressive 28-month high for the Chinese currency when Biden swept passed the 270 electoral college votes required for victory.
While the growth of the yuan has been hampered by Trump’s failure to accept defeat, it’s thought that his removal from office could pave the way for a less tumultuous trade relationship between the US and China and provide a huge boost for investors.
3. The Coronavirus Vaccine and a Return to Normal
There are now three viable coronavirus vaccines in development across the globe; namely those developed by Pfizer, Moderna and the University of Oxford in the UK.
Each of these vaccines are thought to provide between 90% and 95% efficacy (the latter aims to optimise this by adjusting the dose), while their relatively advanced nature could ultimately see one or more products rolled out globally in the next six months.
This will have a seminal impact in the marketplace, with the foreign exchange and global currencies most likely to benefit from a vaccine rollout.
More specifically, an effective and accessible vaccine will end lockdowns and boost economic growth organically, negating the need for quantitative easing measures and causing respective currency values to boom in the process.