One of the major themes, if not the biggest one, during the 2020 crisis, is the weak dollar. Greenback’s weakness is attributed as responsible for gold making a new all-time high, stocks doing the same, and for the strong trend in G10 currencies. 

Make no mistake; other central banks eased too. In fact, some did not even stop easing. Think of the European Central Bank (ECB). It keeps the deposit facility rate below zero for several years now. In the meantime, it ran various easing programs, like TLRO’s (Targeted Long-Term Refinancing Operations) well before the COVID-19 economic recession. It did so because economic growth in the Euro area was anemic.  It still is.

Yet, the fact that the ECB and other central banks (e.g., Bank of Japan) continued to ease in the last years did not affect their currencies’ strength. While the Fed stopped the printing presses for a few years and even raised rates above 2%, others did not.

And then the pandemic hit. All others eased some more. However, when the Fed started to ease, it outpaced everyone and recovered for the lost ground in the last years. Over 20% (!) of all dollars ever created were born in 2020. Let that sink in for a minute!

The FX Market Ahead of the Year’s End

With the Fed literally out-printing everyone else, the stage was set for the USD decline. And it did decline. From the moment the Fed began to ease, the USD literally collapsed against G10 currencies while rose against emerging markets currencies.

In other words, it made life miserable for everyone. On the one hand, G10 central banks would love a weaker currency to fight the crisis. Consider the ECB, which went as far as intervening verbally against the higher EURUSD rate. It did so when the EURUSD reached 1.20 in the summer. Where is the pair at the end of November? You guessed – close to 1.20, trading 1.1930 at the time of writing this article.

On the other hand, emerging markets suffer even more. The USD is the favored currency used to issue debt because it is easier to find customers for USD denominated debt. But that works very well in economic expansion and turns against you during a recession. In 2020, emerging markets saw their currency trashed (e.g., TRY – Turkish Lira keeps making all-time lows against the USD), while, at the same time, they must service the USD debt. Win-win for the U.S., yet again.

It remains a controversy if the status of owning the world’s reserve currency is a privilege or not. In this case, we may say that it is certainly the case.