The anticipated hit on FX volumes due to tourist shutdown

The coronavirus pandemic is no longer a novelty for the modern world. The virus has become a direct synonym of 2020 and deprived us of a usual way of life. Because of Covid-19 people were left unemployed, markets in different countries crashed and almost 900 thousand people have died. The vaccine is still not available, and we might not get one in the upcoming period.

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Q2 2020 hedge fund letters, conferences and more

People were hurt economically. Considering that most of the firms suffered losses during the lockdown, prices on various products increased significantly. One of the most notable fields, Forex has also been affected. Due to the tourist shutdown, FX volumes were hit and it was not unexpected.

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Few tourists mean a fall in FX volumes

It is a general rule of thumb that when tourists arrive in foreign countries they exchange the currency. While the number of tourists dropped notably it has directly caused the decrease in FX volumes. A lot of countries have imposed bans on foreign tourists. Hence, the effect is already visible and for the rest of 2020 the normal situation looks unlikely to be back.

We should not forget that converting the currency especially when we are talking about small countries is extremely beneficial. Fall in volumes has been noted by various brokers. Volumes are pivotal and the fall in volumes greatly deteriorated the trading in FX. At the same time the lack of tourists hampers the currency conversion.

Market recovery is extremely slow

Great Britain perhaps is a clear example of a country, where FX volumes shrunk in 2020. The United Kingdom, which has experienced the largest ever debt in its history of 2 trillion reported a 16% decrease in April. At the same time Matthew Hodgson, who is CEO of Mosaic Smart Data noted that it would take a long period for the FX market to revert to its original position and it is difficult not to agree with him. Volumes are falling across all currencies and if borders do not open the trends will continue.

Coronavirus crashing European economies

The European economy, against the backdrop of restrictive measures in the second quarter of 2020, showed a historic decline - the GDP of the EU countries, fell by 14.4% in April-June as compared to the same period last year. An unprecedented reduction in the size of the economy was reported separately by the statistics departments of France, Spain and Italy. Germany reported a sharp drop in GDP as well and its FX volumes have also been affected.

In the second quarter of this year, the GDP of the EU countries fell by 14.4% in annual terms - as follows from the first estimate of Eurostat, this fall was the strongest since the beginning of statistics, since 1995.

GDP of 19 eurozone countries in annual terms fell by 15%, in quarterly terms - by 12.1%.

Among the data released in August, the indicators of France look worse than others, where the coronavirus pandemic led to a historical decline in GDP and by 19% in annual terms, and in quarterly terms - by 13.8%. However, the National Institute for Statistics and Economic Research (Insee) also records the outlined improvements. As noted in its message, "the step-by-step lifting of restrictions imposed in connection with the spread of the coronavirus led to a gradual recovery in economic activity in May, and then in June - after a serious decrease in activity in April."

In Spain, the fall in GDP in the second quarter compared to the first (then the economy sank by 5.2%) is estimated at 18.5% - which was the worst indicator since 1970. As a result, since the beginning of the year, the country's GDP has fallen by 22.1%. For almost the entire second quarter, Spain lived in restrictions due to the COVID-19 pandemic - restrictive measures were introduced on March 14 and lifted only on June 21. However, in some places the restrictive measures have returned.

How the European Union will save the economy?

Italy's indicators were slightly better, where GDP contraction in April-June amounted to 17.3% in annual terms and 12.4% in quarterly terms. As the National Institute of Statistics (Istat) notes, the Italian economy has suffered an unprecedented contraction, fully attributable to the consequences of the health emergency and the measures taken to contain the COVID-19 outbreak. It should be reminded that earlier Germany also presented its estimates - the fall in the country's GDP in the second quarter was estimated at 11.7% (year-on-year).