This past year was meant to be the one when both the Euro[1] and especially the British Pound[2] suffered from the tortuous negotiations between the EU and the UK on their post-Brexit relationship. Yet in the event both currencies gained against the US Dollar[3] even though the talks proved to be just as gruelling as expected. Moreover, Sterling largely held its ground against the Euro in the second half of the year despite the common view that GBP would be more at risk than EUR if the two sides ended the year without a comprehensive agreement. So much for received wisdom.
One obvious comment is that in the event attention was focused on the coronavirus pandemic and its numbing impact on the global economy rather than on the EU-UK talks, though they were important too. Yet the safe-haven USD[4], regarded as the go-to asset when investors are looking to reduce risk, actually eased back not just against EUR and GBP but against a basket of other currencies too. There are several lessons here. It isn’t just that forecasters agreeing on something does not mean it will happen. It is also that hopes – in this case of a swift economic recovery thanks to a Covid-19 vaccine – can outweigh fears as the markets look further ahead and ignore near-term problems.
DailyFX[5] provides forex news and technical analysis on the trends that influence the global currency markets.
