The COVID-19 pandemic cost millions of lives and drove many thousands of businesses into extinction. On top of that massive heap of tragedy, it leveled direct hits on some of the world’s most stable currencies. The COVID effect was a double-edged sword, though, because in its wake, some nations came out ahead, and others suffered. With almost frightening irony, the home base of the illness, China, saw a strengthened yuan in the aftermath of the pandemic, while other national currencies, like the dollar and the yen, weren’t so lucky.
In many instances, there was little or no relationship between the outbreak and the fate of foreign exchange rates. In fact, the results are still being felt as the viral spread subsides, and not all the results are obvious or logical. A few indisputable facts stand out, however. They include a huge round of economic contraction in dozens of developed nations, the effects of the disease on the US dollar, apparent delayed effects on the Chinese economy and society, and Japan’s weakened yen. The following listing details how the global illness impacted the dollar, yen, yuan, and other areas of the world FX markets.
Pandemic Stunted Economic Growth Worldwide
People disagree about various aspects, causes, and effects of the COVID illness, but one indisputable fact stands out that the malady wreaked havoc on the global economy in deep and permanent ways. In every developed nation, for instance, rates of growth were almost universally halted, reversed, or stunted. Closures and illnesses meant widespread job losses and bankruptcies. Large numbers of individuals and small businesses were financially decimated and are still struggling. Smaller startup companies and low-level wage earners were hit particularly hard. A few exceptions to the travesty stood out, namely the success of healthcare companies that were manufacturing vaccines.
Another bright spot was the foreign exchange market, which enjoyed an upswing in employment and vast interest from individuals who needed part-time, home-based jobs to pay the bills. Of course, there were already many FX devotees before the pandemic struck, many of whom operated from their homes doing forex trading with Friedberg Direct and other top brokers. The dollar, yen, and yuan are three of the world’s leading currencies, and all were affected by COVID, but not in the same way. Already ailing before 2020, the yen had an up-and-down ride from March of that year onward. The US dollar took a significant hit but has apparently bounced back. Ironically, in the nation where the virus began, China, the yuan had a long run of increasing strength immediately after the pandemic became a worldwide phenomenon.
COVID and the USD
The dollar is a strange case in many ways. Immediately after March of 2020, it enjoyed a longish run as a safe haven currency, bolstering its fortunes through March of 2021. Whenever there’s a world crisis of any kind, the USD tends to improve in the immediate aftermath but typically reverts to its usual levels after fear loses its grip. What’s happened since last March? The USD has been on a weakening slide, partly as a result of the nation’s self-destructive economic policies. The lone bright spot was the May 2022 Fed rate hikes, which had the expected result of strengthening the USD, at least temporarily.
For almost exactly two years, from March 2020 to March 2022, China’s yuan (CNY) steadily improved against the US dollar (USD). The reasons are complex, but the fact is relevant as an example of how some currencies were not harmed at all by the global illness, even if their overall economies were strapped with high unemployment and zero growth. It wasn’t until early this year that the dollar, buoyed by Federal Reserve Bank rate hikes, began to outperform the yuan.
Japan’s Fragile Yen (JPY)
From the outset of the pandemic, the yen showed a tepid response, despite being a next-door neighbour to the country where the illness originated. For about one year, the yen strengthened against its benchmark comparison currency, the USD. After that, from March of 2021 until March 2022, it began to slowly weaken. Once the Fed’s rate hikes took effect, the often-fragile JPY lost significant value against the dollar and is currently in a state of see-saw trading around the 130 mark.
Is It Over?
COVID-19 is still causing problems for several nations, particularly China. In the virus’s home, lockdowns and company closures are still in effect in some large cities like Shanghai. The Chinese economy has been duly devastated, and its long-term prospects appear dim. Variants of the viral strain continue to appear and disappear with frequency, but FX markets have mostly shaken off the direct effects.