2020 marked by Coronavirus and Brexit

The single currency continues to hover around its highest level of the year in these last days of 2020. It had begun on January 1 at 1.1210. 12 months later, it is worth 10 cents more at 1.2200. 2020 will have been marked by the coronavirus pandemic and Brexit. These two events which have been in the spotlight throughout these twelve months remain the two main themes of recent days with the arrival of a new strain of the virus and the latest attempts at negotiations between London and Brussels.

On the economic front, in the United States, after an agreement was reached on Sunday evening in Congress between the Republicans and the Democrats on measures to support the economy, a new aid programme of 892 billion dollars will be implemented. This new programme includes checks of 600 dollars per adult and per child for American families weakened by the pandemic. Treasury Secretary Steven Mnuchin said those checks will be sent out early next week. Last Wednesday, the US Federal Reserve was relatively positive at its last monetary policy meeting of the year. It said the outlook for the US economy had improved since September, despite the recent second wave of COVID cases. Fed Chair Jerome Powell believes that with the arrival of vaccines, the second half of 2021 will see strong growth. The institution has thus revised its economic outlook upwards. GDP is expected to grow by 4.2% in 2021 and 3.2% in 2022, and unemployment should decline to 5% next year. Inflation is expected to remain moderate at 1.8% in 2021 and 1.9% in 2022. This will ensure low rates at least until 2023, per the Fed. As expected, it has held its key rates steady and asset buybacks will continue to the tune of $120 billion per month.  It clarified that these bond purchases will continue until the economy is fully recovered from the effects of COVID-19.

At its quarterly monetary policy meeting, the SNB also held its key rate steady at -0.75%. The US Treasury has released its report on currency manipulators. And as anticipated, it designated Switzerland for the interventions of the Swiss National Bank in the foreign exchange market. The SNB refuted these accusations while specifying that it would continue to intervene to prevent an appreciation of the franc. In the short term, no sanctions are expected, especially since the dollar is at its all-time low against our currency if we disregard the two brief periods that were the European debt crisis in 2010 and the abandonment of the floor rate in 2015. In twenty years, the greenback has lost 50% of its value against the franc. At the end of 2000, it was worth more than 1.80 francs against less than 0.9000 at the moment. But analysts nevertheless fear that in the long term the central bank will be hampered in its desire to defend the franc.

Other central banks held their monetary policy meeting last week.

The Bank of England left its key rates and its asset purchase programme unchanged. While uncertainty remains on whether there will be an agreement between the European Union and the United Kingdom, the status quo was largely anticipated. It is clear that the BOE prefers to save its ammunition until December 31. In the event of a ‘no deal’, the bank will undoubtedly put in place new measures to cushion the shock. Measures that could go as far as lowering rates. In the event of an agreement, it may be satisfied to see it coming.

The Bank of Japan also kept its rates unchanged but it extended its business support programme for 6 months, from March to September 2021.

The Bank of Norway surprised analysts. While it has did keep its rates unchanged at 0%, it revised its expectations on the future of its monetary policy. In September, it did not plan to hike rates until the end of 2022. It has now advanced its forecast to the first half of 2022. The major central banks have made clear lately that their rates will remain low for a long time to come. The Bank of Norway, for its part, believes if the economy recovers strongly next year then rates should rise faster than previously forecast. It is a similar scenario which is now considered by the Central Bank of the Czech Republic and its governor Jiri Rusnok. He moderated expectations by estimating that many uncertainties remain but if the vaccine confirms hopes then the economy will pick up strongly.

Lastly, the Central Bank of Russia held its rates at their historic lows of 4.5%. It changed its discourse somewhat by saying that while the door was still open for another rate cut, it was becoming less obvious in the face of inflation. The Bank revised its inflation forecasts for the end of the year to a range of 4.6 to 4.9%, up from 3.9 to 4.2% in October.