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2020 FX recap: The biggest currency market themes of 2020

The year 2020 will probably be remembered for a number of reasons with the coronavirus pandemic being the cornerstone marking a rather chaotic year in the financial markets. The pandemic which started in China around mid-December 2019 quickly engulfed the whole world leading to unprecedented decisions which impacted the day-to-day lives as well as government decisions and the financial markets.

It was a volatile year nonetheless and the impact of this could be felt across all asset classes. Here is a quick recap of some of the remarkable milestones in the currency and commodity markets.

Gold rises to the highest level ever in history

the biggest outperformer among all the asset classes without a doubt was gold. This commodity managed to stay true to its nickname as being a safe haven asset. As the pandemic raged on leading businesses to be closed temporarily, investors jumped on to the safe haven asset. As a result, gold prices touched the highest levels ever on record, peaking $2063 on 8th of June 2020.

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Gold hits the highest level on record in 2020

Another impressive feat for gold was the fact that after prices fell sharply in mid-March this year, the safe haven asset posted a remarkable 40% gain by early June. It was one of the quickest recoveries among all the asset classes.

The Turkish lira takes a beating

It wasn't just a pandemic related event that drove the currency markets this year. Bad monetary policy and geopolitics also managed to take the center stage in 2020. One such example comes from the Turkish lira which fell to the lowest levels ever recorded on history.

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Turkish lira, the worst performer among emerging market currencies

On 6th November 2020, the Turkish lira was trading at 8.48 to the dollar. The Turkish lira weekend as a result of the pandemic exposing weak economic policy. Overall, emerging market currencies took a beating across the board as the dollar firmed during the early parts of the year. However, the Turkish lira was the worst performer of all.

Concerns about inflation and a balance of payment crisis and lackluster approach from the Turkish central bank so speculators taking advantage of the weakness in the Turkish lira. Even foreign currency interventions proved to be expensive as at one point as it depleted Turkey's currency reserves.

Oil prices go negative

Who would have thought that crude oil, one of the most widely traded and no doubt widely used commodity would go negative? Yet, the year 2020 had its fair share of surprises. As a result of the pandemic led lockdowns, crude oil prices fell below zero for the first time in history.

This phenomenon, unseen in the futures markets basically meant dot oil producers for paying buyers to buy barrels of oil. This came as most of the world enter into a lockdown in order to arrest the spread of the coronavirus pandemic. It also included the transportation sector coming to a standstill. Air travel was the most significant industry to be hit. With planes grounded all across the globe, demand for crude oil fell sharply.

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Oil prices hit -$37 as production outstrips demand

However, with production continuing at the same pace the world saw major oil storage is reaching full capacity especially at Cushing Oklahoma. As a result, Denver sharp shortages in storing crude oil. This led to a capitulation in the oil markets as the futures markets saw price falling to -$37.00 at one point.

The U.S dollar has a wild ride

The US dollar was also under the impact of the pandemic let chaos. In fact, the year 2020 has proven to be quite a volatile year for the world's reserve currency and understandably so. The US dollar initially a certain its status as the world's reserve currency as it peaked to highs of 102.938 around mid-March this year.

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U.S. dollar’s wild ride in 2020

the gains in the US dollar came as panic set upon investors. With credit lines quickly drying up, the US Federal Reserve had to act quickly as it opened up new currency swap lines to keep the flow of dollars stable. This led to a sharp strengthening of the US dollar which was only trading at 95 in early March. By mid-March, the greenback rose by nearly seven points.

This sharp rise in the greenback put undue pressure on most currencies with the emerging market currencies taking a larger hit. However, since peaking out at 102.938 in mid-March, the US dollar is in a steady decline ever since. At the time of writing, the greenback is trading at a two and half year low. This is well past the dip we saw in early March this year.

Overall, it wasn't just the currency markets but also equities and bonds with saw undue volatility. With the release of the COVID-19 vaccines, hope is once again making a comeback. Investors are now optimistic that the year 2021 will be a little less chaotic than the year gone by.

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