Apr, 2021 - By CMI
The effect of COVID-19 on the foreign exchange market was devastating. As the world's major economies declared a state of emergency and imposed travel restrictions, the foreign exchange industry, like other sectors, was effected.
As COVID-19 cases were at its peak, unemployment hit extreme levels, and remittances dropped to tragic lows. There was no market for foreign exchange because people were too concerned with securing their livelihoods. The condition has significantly improved, but the path to full recovery remains uncertain. Due to the COVID-19 crisis, the foreign travel industry was one of the worst-affected markets, and the ban on international flights effectively shut down the market. Many businesses that deal with forex cards, international remittances, currency exchange, and travel necessities such as tours, travel insurance, international SIM, had to fully cease operations. In fact, as most parents called their children studying abroad back to India, each of these services experienced a drop in demand. Thanks to COVID-19, the summer vacation season was totally ruined. A large number of business meetings were also conducted through the internet. Face-to-face meetings were replaced by Zoom calls. The World Bank estimated that low-income emerging economies would lose US$ 110 billion in 2020 as a result of COVID-19, the largest drop in remittances in modern times. International money transfers, also known as remittances, are cash flows sent home by foreign workers to support their families and are a significant source of income in low- and middle-income countries.
However, due to panic purchasing, increased use of supplies to combat the pandemic, and disruptions of factories and logistics in mainland China, supply shortages are likely to affect a variety of sectors. Due to a large increase in the number of COVID-19 cases outside mainland China, global stock markets plummeted on February 24, 2020. Stock markets around the world had seen their biggest single-week losses since the 2008 financial crisis. In March 2020, global financial markets collapsed, with big indices falling by several percent.
Impact in Exchange Rates: The interrelationship between occurrence of the corona virus outbreak across the world and the volatility of exchange rates has been interesting to study. Usually, countries that record daily increase in new cases of COVID-19 witness their currencies fall in value. When the pandemic hit a nation or region for the first time, expectations for economic growth would be destroyed, with fears that parts of the economy would have to be shut down. In contrast, when the country recovered and controlled the spread of the virus and confirmed cases decreased on a regular basis, the consumer narrative was dominated by excitement about the country's reopening. The Chinese Yuan briefly dropped during the early stages of the deadly virus until the end of May 2020. From June 2020, onwards, however, it was clear that China had made considerable progress in controlling the disease's spread. The recovery has been solid, as witnessed by the return of domestic air travel.
At the same time, as China's economy began to recover in the summer of 2020, the U.S. economic efforts failed by a second wave of the flu that swept the world. The comparative incongruity of the virus embedded in China and still growing in the U.S. was most likely the key reason why China's currency rallied so strongly between July and September. Europe, especially Italy, had been badly affected even before the Coronavirus arrived in the U.S. Euro then jumped more than 10% against the US dollar by the end of August 2020, after hitting a rock bottom in March 2020. However, Euro's rise was halted not by policy decision or significant revision of economic data. The rising evidence of a second wave of the outbreak gaining momentum in Spain and France, among other countries, which was expected to have a negative impact on the economy, put a stop to the popular Euro's rally. Indian Rupee, out of all the Asian currencies, had the worst performance in 2020.
Getting best forex rates at uncertain times: Anyone will get the best available forex offers on online forex & remittance platforms if they plan to send money overseas or if they need to travel abroad. The best benefit of using an online forex market is that they don't have to leave their house for any formalities. Many online forex platforms provide same-day or next-day currency delivery to their doorstep. When it comes to foreign money transfers, these sites will complete the transaction within 12 to 36 business hours after they confirm it.
Impact on Agriculture: Up to 80% of the population in food-crisis countries depends on agriculture for survival. As a result, any further disruptions to food production and associated supply chains, such as decreased availability of vital resources or limited access to lands or markets, may have disastrous consequences for vulnerable communities. The agricultural sector has a major impact on migratory trends. Border closures are likely to hit transhumant pastoral communities hard, as they depend on seasonal livestock movements for food and income.
Impact on Manufacturing: In the U.S., new vehicle sales dropped by 40% in August 2020. The German automotive industry was already in trouble due to dieselgate scandal, as well as competition from electric vehicles. Production at several Boeing and Airbus factories has been halted. The British Plastics Federation (BPF) conducted a survey to see how COVID-19 is affecting manufacturing businesses in the U.K. Over 80% of respondents predicted a drop in turnover in the next two quarters in 2021, with 98 percent expressing concern about the pandemic's effect on business operations.
Impact on Art, cinema, and sports: The emergence of COvid-19 had an immediate and significant effect on the global art and cultural heritage industries. By March 2020, most cultural institutions around the world had been temporarily closed (or at the very least, their programmes had been drastically reduced), and exhibits, festivals, and performances had been cancelled or postponed. Many people have lost contracts or employment, either temporarily or permanently, with varying degrees of notice and financial assistance.
The film industry has been affected by the pandemic. Cinemas have been closed around the world to varying degrees, festivals have been cancelled or postponed, and film launches have been rescheduled. The global box office fell by billions of dollars as cinemas closed, while streaming became more common and Netflix's stock rose; film exhibitors' stock plummeted. Almost all blockbusters scheduled for release after the March opening weekend have been delayed or cancelled around the world, with film production halting as well. The industry is expected to suffer massive losses.
Most major sporting events have been cancelled or postponed, including the Tokyo 2020 Summer Olympics, which were postponed until 2021 on March 24, 2020.
Impact on restaurants sector: The pandemic also have an influence on the restaurant industry. Some major U.S. cities announced in early March 2020 that bars and restaurants would no longer serve sit-down dinners and would instead focus on take away and delivery. Later that month, several states imposed laws requiring restaurants to only serve take away or delivery. In comparison to similar industries, some workers were dismissed. In the U.S., the ‘Great American Takeout’ campaign encouraged people who were quarantined to help local restaurants by ordering takeout for curbside collection or using food delivery services on Tuesdays. It started in later part of March 2020.
Impact on Science and technology: The pandemic has hampered the competitiveness of space, science, and technology programmes, forcing NASA and the European Space Agency to suspend development of the Space Launch System and the James Webb Space Telescope, as well as bring space science probes into hibernation or low-power mode. The majority of staff in both agencies' field centres have been directed to telework. Various IT companies had launched a number of programmes to help people cope with the pandemic and their new normal lives.
Impact on Retail: The pandemic has had an influence on the retail industry. Shopping malls all over the world have reacted by reducing hours or temporarily shutting their doors. Footfall to shopping malls has decreased by up to 30% as of March 18, 2020, with major effects on every continent. Furthermore, demand for many consumables outstripped supply, resulting in empty store shelves. For products purchased from e-commerce sites, some retailers have used contactless home delivery or curb side pickup. Retailers began introducing "retail to go" models in April 2020, allowing customers to pick up their orders. In comparison to the previous year, an estimated 40% of shoppers were shopping online and picking up in-store, a behaviour that had unexpectedly doubled.
Overall Economic Contraction: The Covid-19 recession is an economic downturn that is expected to hit the global economy in 2020 due to the emergence of corona virus. Global financial markets have been in free fall since 1987, and the G20 economies have fallen 3.4 percent year on year in the first three months of 2020. The International Labour Organization reported that between April and June 2020, an average of 400 million full-time jobs were lost across the world, and workers' wages dropped 10% globally in the first nine months of 2020, amounting to a loss of over US$3.5 trillion.