If 2020 taught us something, it is how difficult it is to make a forecast. Therefore, any attempt at budgeting and forecasting for 2021 should be taken with a grain of salt.
Nevertheless, some major macro themes will be in play next year, with some of them starting even from December 2020. As such, the global investor or the regular FX trader involved in selling and buying currencies should pay attention to major trends emerging around the world.
Rolling out the vaccines and the implementation of the vaccination campaigns around the world will have a strong effect on regional economic activity. We do know the potential efficacy of some of these vaccines, but next year we will find out much more.
Crucially important is the willingness of the population to get a vaccine. Communication campaigns from the government are vital, and, in some cases, a stimulus may also work. Also, any delays in getting the regulatory approval for rolling out the vaccines should have a tremendous economic impact for the year ahead.
The Biden Bounce
Next year there will be a new White House administration. With the transition team already active in the transfer of power, 2021 will be marked by mostly repairing what the Trump administration did.
More precisely, the U.S. gets back to the climate accord, discussions with Iran will be reinitiated, and the U.S. role in NATO will continue as before Trump. Also important, the withdrawal from the WTO will be stopped.
The markets already rally hard on expectations of the so-called “Biden bounce”. The new administration appointed former Fed Chairwoman Janet Yellen as the head of the Treasury, and her first major task is to negotiate a new stimulus at the start of the year.
One of the regions in the world hit the hardest by the coronavirus pandemic, Eurozone will have a difficult year ahead. While it solved the financing needs for fighting the crisis, the Eurozone still has some internal disputes and will likely suffer from the U.K. leaving the European Union.
To this day it is not precisely clear how the Recovery Fund will go along, considering that Hungary and Poland still veto it. A solution will probably be reached, but such delays translate into human lives, and the signal sent to financial markets is negative.
The Euro’s strength against the U.S. dollar is another issue for the region. The sooner the ECB manages to address the issue effectively, the better for the economic performance in 2021.