It appears currency exchange rates are not necessarily indicative of a struggling or powerful economy, but rather how much of a particular currency is in demand. The most prominent example of this is the euro, which has formally traded way better since it was first introduced in 1999 than its iconic rival - the greenback.
The past year, however, has shown that things could gradually be reversed, because the euro has fallen in price against the dollar by 3 percent, per exchangerates.org
Greenback's Trade Dominance
The European currency is meanwhile facing another 5 percent decrease in the coming months due to a certain imbalance between strong and weak European economies, financial experts predict.
On top of this, according to the SWIFT pay system, in world trade, the euro currently accounts for 35 percent of deals, whereas 40 percent of transactions involve the dollar, as a range of commodities have traditionally been bought and sold in dollars – something one finds hard to dump due to certain economic inertness and US economic clout.
Although the US dollar was weak across the board, over the course of the year the dollar’s index against a basket of other currencies has risen to a two-year high, amid the stepped up negotiations of a trade deal with China, which has put a number of investors’ minds at rest, Kitco reported.
US' Trade Deal vs. European Calamities
White House trade adviser Peter Navarro said on Monday the trade deal would likely be signed next week, but the final confirmation would come from President Donald Trump or the US trade representative.
The Euro, meanwhile, had its calmest year ever, shrugging off its continuous reputation as a volatile reflection of Europe’s constant political mishaps – be it the lukewarm Brexit debate or “yellow vests” protests.
Despite a dubious 2019 for European growth, with government bond yields occurring against the backdrop of the UK’s exit from the European Union, the common EU currency had its narrowest yearly trading range against the dollar since its inception in 1999, The Wall Street Journal wrote.
While the US is expected to lead the western world in economic activity, many analysts predict it is the dollar that will gain further momentum, despite ending this particular year at a five-month low:
“The US is expected to see solid growth while the rest of the world struggles”, said Win Thin, global head of currency strategy at Brown Brothers Harriman. “I still like the US dollar story in 2020”.
“Ultimately, we think the fate of the USD lies with the evolution of the world outside, not inside the US”, currency analysts at T.D. Securities noted.
“Stabilisation of global growth, a reduction of uncertainty and geopolitical tensions, and less global central bank easing would start to work against the USD”, they explained.