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The greenback's fast devaluation arouses outrage outside the USA

2020-12-04

2020-12-04

Dollar let a genie out. Review as of 04.12.2020Dmitri Demidenko

The greenback’s fast devaluation arouses outrage outside the USA

Dozing at the bottom of a bottle, currency wars can become the main

issue of 2021

- Darling, won’t you forget me?

- Honey, I won’t even remember you!

More than ten years have passed since Brazil’s Finance Minister Guido Mantega compared money printing with an economic war led by the world’s central banks, particularly the Fed. Back then, he was talking about “currency war”. Financial markets still remember those events from time to time. In response to the pandemic-driven recession, the Fed pumped so much liquidity into the system that the USD couldn’t help falling. Other regulators are already indignant at the dollar’s slump from March’s maximums. So, a currency war may become the main topic of the year 2021.

People who don’t study history are doomed to repeat it. People who study history are doomed to watch helplessly other people repeating it. The Asian Central banks, including South Korea, Taiwan, and Thailand, use verbal interventions against their currencies’ consolidation, saying they are following the rates 24 hours a day. Sweden’s central bank unexpectedly extended its QE program at the latest meeting, the krona being one of the best performers among the G10 currencies. The Fed used a large monetary stimulus to hurt the competitors’ exports.

 - You partner thinks beating you is a sign of love? Then punch him hard to make him feel your love! 

The USD index dropped 11% in the past eight months. Morgan Stanley says it’s overvalued by 10%, and Citi forecasts a 20% fall in 2021.The euro’s prospects seem bright, and many think the [EURUSD][1] is still at the very beginning of its ascending movement. However, it turns out that it takes more breath away when you are at the foot of a mountain than on its top. After Brazil’s minister delivered his famous speech in September 2010, the greenback lost 10% in three months and 17% in nine months. Nowadays, the Central banks are more concerned about the speed of the USD index’s fall than about its scales. Just like ten years ago.

Despite the impressive post-election results, the developing-nation currencies’ index is still 5% lower than at the beginning of the year. The hardest-hit currencies of 2020 - the Russian rouble, the Brazilian real, and the Turkish lira - cost 20%-30% less than in January. For them, like for the whole humanity, the most wonderful news is that 2020 is finally coming to its end.

- Barrymore, has the end of the world already occurred?

- No, sir. They are still rehearsing.

Actually, they often make a mountain out of a molehill when speaking about currency wars. A national currency’s consolidation affects exports, but the USD’s weakness makes dollar debts cheaper, which should make developing countries happier. 2021 is the year of optimists. I’ve got another piece of bad news for pessimists: Dutch scientists say optimists live longer. Take care of yourself!

[EURUSD][2] current rate in the Forex market:

EURUSD = 1.21259

1-day change

-0.0016 (-0.13%)

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Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. my.lite.forex/trading/chart?symbol=EURUSD&returnUrl=true
  3. my.liteforex.com/?category=chatty-forex&slug=dollar-let-a-genie-out-review-as-of-04122020&openPopup=%2Fregistration%2Fpopup