The quote ‘history doesn't repeat itself, but it often rhymes,’ which is largely attributed to Mark Twain, comes to mind as COVID-19 has made 2020 an unforgettable year.
The increased use of quantitative easing (QE) has brought back key market trends seen during the 2008 Global Financial Crisis. The US Dollar once again reflected an inverse relationship with investor confidence. The unprecedented steps taken by major central banks may continue to influence currency markets even though the economic shock from the pandemic is unlike the repercussions of any prior financial crisis.
Nevertheless, the monetary response to COVID-19 looks poised to persist as the Federal Reserve balance sheet climbs to fresh record highs. Swings in risk appetite may continue to sway foreign exchange markets in 2021 as Chairman Jerome Powell tells US lawmakers that the Federal Open Market Committee (FOMC) remains “committed to using our full range of tools to support the economy and to help assure that the recovery from this difficult period will be as robust as possible.”
--- Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong
