Exchange rates have been stable in the Covid crisis –are we heading for a storm? | Kenneth Rogoff

There has been a surprising lack of volatility during the pandemic and US election, but this could change

With alternative assets such as gold and Bitcoin thriving in the pandemic, some top economists are predicting a sharp fall in the US dollar. This could yet happen. But so far, despite inconsistent US management of the pandemic, massive deficit spending for economic catastrophe relief, and monetary easing that the Federal Reserve chair Jerome Powell says has crossed a lot of red lines", core dollar exchange rates have been eerily calm. Even the ongoing election drama has not had much impact. Traders and journalists may be getting worked up about the greenback's daily travails, but for those of us who study longer-term exchange-rate trends, their reactions to date amount to much ado about nothing.

To be sure, the euro has appreciated by roughly 6% against the dollar so far in 2020, but that is peanuts compared with the wild gyrations that took place after the 2008 financial crisis, when the dollar fluctuated between $1.58 and $1.07 to the euro. Similarly, the yen-dollar exchange rate has hardly moved during the pandemic, but varied between 90 and 123 to the dollar in the great recession. And a broad dollar exchange-rate index against all US trading partners is currently sitting at roughly its mid-February level.

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