The economic recovery could support a number of emerging currencies.

The year 2020 will have been one of paradoxes, with one of the worst crises in history which resulted in a year that was finally quite calm for many financial assets such as currencies. “Volatility there ultimately proved to be much less important than during the previous financial crisis”, confirms Guillaume Dejean, Forex strategist at Western Union Business Solutions, referring to the unprecedented support of central banks and States, before the victory of Joe Biden and the promise of vaccines only build confidence.

The dollar was one of the big losers of the year due to the Fed's rate cuts, the good performance of US equities and renewed confidence in the euro. The DXY (dollar/currency basket) index is expected to end around 90, down from 96 on January 1 and 103.6 at the March peak. Conversely, the euro benefited from the prospect of a new European debt market likely to compete with US Treasuries. Over one year, the euro-dollar rose by 9% (to 1.22 dollars), roughly like the Swiss franc which will have confirmed its status as a safe haven against the dollar, only outperformed by the Swedish krona (+12 %).

After the collateral damage, several currencies linked to commodities such as the Australian dollar (+8%) or the Norwegian krone (+2%) will have experienced a real rebound since the summer, as well as other emerging currencies such as the dollar Taiwanese (+6%), the South Korean won (+5.7%), and above all the yuan (+6.6% against the dollar), “driven by the recovery of China and greater openness to capital foreigners, continues Guillaume Dejean. This upward momentum is expected to continue into next year.

The year 2021 will not make it possible to remove all the uncertainties. But “a rebound in global growth gives hope for a prolonged revaluation of cyclical currencies linked to raw materials (particularly oil), and other emerging currencies, some of which remain very undervalued: South African rand, Brazilian real, ruble, rupee , Mexican peso... A stable market environment and low rates would support a 'race for yield' which would be favorable to them, and a further decline in the dollar, concludes Guillaume Dejean. The final Brexit agreement could pave the way for a gradual revaluation of the pound sterling, another big loser of the year, while the euro will have to confirm”. The possible recovery divergence with the United States will be key.