All you need to know about the current currency craziness💵️💶️💷️
Issue 032 - WTF is going on with the Economy?!
Photo by Jason Leung on Unsplash
Hello, and welcome to issue #032 of WTF is going on with the Economy?! - The leading no BS newsletter for people living abroad to understand what’s happening with the economy. Thank you 🙏️ for being the awesome subscriber that you are!
What we're watching
Holiday travel restrictions
The end of the year holiday season is upon us.
Like everything else in 2020, this year will look a lot different than in the past.
As of this writing, many countries are moving to either shut borders (both internal and external) or restricting gatherings.
It seems that politicians are waiting until the last possible minute to make a final decision.
That's great if seeing your family means hopping in the car for an hour's drive.
It's not so cool if you need to book a flight and spend a half-day or more traveling.
For us living abroad, it means that we'll most likely be spending the rest of the month at home (err, where we're living) and not…' back at home.'
#ExpatLife
Black Friday in a Pandemic
Despite the muted holiday season, Black Friday was a roaring success.
Well, at least it was for online retailers.
There's tons of talk about what the world will look like post-pandemic.
Despite some far-out predictions, it could be safe to say that 2020 is the year that e-commerce finally broke traditional retail.
If that's the case, then the implications for the economy and investors could be tremendous.
Then again, everything about 2020 is supposedly huge.
We're going to explore this topic in a bit more depth, probably next week.
Unless there's a Brexit deal, in which case, we'll do that because...it's not a newsletter if we're not covering the news.
Brexit
The long slog to finding a Brexit deal is reaching its final stretch.
We're not going to predict a deal (or lack of one).
However, markets, businesses, and Brits abroad are more than ready for a resolution, even if it means no-deal.
Maybe we'll find out this week how the Brexit saga ends.
US and EU stimulus
Leadership on both sides of the Atlantic signaled that they want to finish 2020 with a financial bang.
In the United States, there's renewed appetite in Congress for a second fiscal stimulus round.
The country's initial program from March is mostly running out.
Furthermore, millions could face eviction or worse in the coming weeks without government intervention.
Meanwhile, the European Central Bank (ECB) will consider additional monetary stimulus to get the eurozone economy through to the vaccine.
It's not clear what that will look like yet (the bank is meeting on Thursday to discuss. We'll fill you in next week on what happened).
Interest rates are already rock bottom: look no further than your savings account for proof of that.
They could start buying more bonds (loans) from companies or even outright stocks.
Additionally, the ECB will want to keep the euro from getting too valuable as it hurts European exports.
Unfortunately, there's little that they can do to control the exchange rate.
Speaking of which...
The (longer) read: What's happening with exchange rates right now.
You might have noticed that the exchange rates have been nutty lately.
If you're a remote worker earning your income in a different currency, you've definitely noticed that the exchange rates have been nutty lately.
So, uh, what gives?
Let's take a look.
(First, if you need a quick intro to exchange rates, check out our short explainer article.
It has a cat and dog in a hot tub, plus a clown.
You probably don't want to miss it).
The Safety of the US dollar and a brighter global outlook
The US dollar has long been a haven for scared global investors.
Back in March, the global economy went straight down the toilet.
At the time, investors flocked to the greenback, looking for some stability from crashing stock and commodities markets.
The dollar soared to some of its highest levels ever against the Euro and British pound.
As the pandemic continued to play out, investors got a better idea of the global economy's direction.
Up until this point, the US central bank was propping up the global economy.
Then, over the summer, it became clear that other major economies worldwide were willing to do what it takes to survive.
Here, the euro strengthened, and as a result, the dollar weakened to levels last seen in 2018.
The currency markets remained relatively stable from that point until mid-November.
Then, the nuttiness began.
A few weeks ago, the dollar began weakening against most major currencies.
First, there was positive news about three vaccines being effective and ready.
Investors saw this breakthrough as a light at the end of the tunnel.
They immediately took their dollars and bought British pounds, Japanese yen, Swiss francs, and other currencies to invest globally.
Second, the US central bank -- the Federal Reserve -- hinted that it would keep interest rates low for the foreseeable future.
Lower interest rates mean that bank deposits don't earn as much as they would elsewhere.
You see that in your savings account.
Global investors do, too, and they decided to look for higher-earning opportunities outside of the US.
These factors are pushing the dollar lower, and, if you would believe the analysts, there's little end in sight to the drop.
But are the analysts right?
Currency markets are predictably unpredictable.
Seriously.
There seems to be a consensus among professional FX analysts that the dollar could weaken further.
But that's far from set in stone.
No one can say where an exchange rate will be in two hours, let alone six months from now.
Remember:
There's still tons of uncertainty in the global economy.
The pandemic is far from over.
Brexit's finality is unclear, which weighs on the pound, euro, and dollar.
We don't know what the ECB or other European/global governments will do to support their economies.
The US will probably pass a stimulus, but we don't know (yet) what that will look like.
Oh yeah, there's still the last two Senate seats up for election in January.
Whichever party wins those seats will determine who controls Congress, and therefore, the Biden administration's ability to act on the economy.
Additionally, many countries will stop their emergency support and furlough programs in the coming months.
Will that put us back into a recession?
These moves drive wild swings in FX markets, and they probably won't stop any time soon.
What can I do to keep my sanity?
For many of us living and working abroad, exchange rates are a part of life.
It's mildly infuriating to watch our actual net income change by the minute, especially when we're losing money.
Here's what you can do to keep calm (and sleep well).
Accept that you can't control the currency markets.
No one can control currency markets, no matter how hard some people try.
Instead of trying to time the market or somehow get ahead of it, accept that exchange rates will happen, regardless of what you do.
By taking the right mentality, you'll stress less over money.
Don't do something stupid like try to beat the markets through some exotic trading strategy.
We've read about people claiming they could get around the exchange rate by initiating some complex global trade sequence.
Know that:
You can't. Markets and traders effectively erase "shortcuts" as soon as they appear;
Suppose you're trying to trade your pounds for euros by exchanging for Canadian dollars, Chilean pesos, South African rand, and Vietnamese dong. In that case, you're going to wind up with a currency portfolio that looks like a UN security council roll call. You're also going to lose tons of money.
Don't do it.
Set a plan and sleep better
Build a plan if you're worried about the rate dropping further.
Instead of opening the ole browser and Googling the FX rate every three minutes, set a benchmark rate that you know in advance.
Then, with an alert in place, you can quickly exchange your money if the market hits your rate.
This way, it's possible to forecast how much you'll need to transfer or how much you'd receive when you do the exchange.
If you absolutely need that money today, then make the transfer - eliminate the uncertainty even if it's painful.
Losing sleep sucks as it is. Don't let the exchange rate fuel your insomnia.
Get creative
Finally, if you're at the mercy of the exchange rate, you could always look to shift some of your expenses into a different currency.
For example, lots of travel and airline websites accept payment in multiple currencies.
However, the rates they use aren't always updated in real-time.
With some creative searching and even a VPN, you could get a significant discount on travel, vacations, subscriptions; you name it.
Finding these sorts of deals won't solve your problem, but it can make it better.
That’s it for us this week: have a great one!