Factors Shaping Global Forex Markets in the 2020s

The four factors shaping global forex l markets in the 2020s so far: fiscal policies, international transactions, speculation, and supply and demand.

Forex Commodities Americas
7 min read
Craig Erlam
Craig Erlam
Contributing Author at OANDA

Forex trading in the time of pandemics and war

Understanding the factors that shape global business trends and forex markets in the 2020s requires a quick return to the basics.

There are four anchors that help define the global economic picture at any given time. Their relationship to each other and current events combine to set the scene for traders. These anchors are:

1. Fiscal and monetary policies

2. International transactions

3. Speculation and expectations

4. Supply and demand

Understanding these anchors is especially challenging today, with COVID-19 adjustments and the Ukrainian war influencing long-term trends while introducing a few surprises.

Here are four market shifts directly related to the key anchors and impacted by those unexpected events.

Stagflation, recession, and slowed growth force governments to intervene

In June of 2022, World Bank President David Malpass stated: “The war in the Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid.”

There is a lot to unpack in this statement. Towards the end of the last decade, the risk of stagflation (stagnant economic growth coupled with high inflation) was low as inflation was proving extremely hard to come by, rather than a threat.

Slower economic growth and the prospect of recession, on the other hand, was a risk going into 2020. Most economies around the world had managed relatively low but stable growth after eventually recovering from the global financial crisis in 2008. Stock markets had experienced multi-year bull markets supported by record low interest rates and quantitative easing. In the view of many, a recession was due and cracks were appearing. It was a worrying but manageable outlook.

Enter COVID-19, and the prospect of a lockdown-induced economic collapse, and governments were forced to intervene or face a long and severe recession, maybe worse.

Advanced economies like the US, European Union (EU), Japan, and Australia implemented emergency stimulus packages, increased quantitative easing and stabilized financial markets in a bid to soften the recession and boost the recovery.

For a long time, those efforts appeared to be paying dividends.

However, the disruption to supply chains was creating imbalances; demand recovered much faster than anticipated and supply couldn’t keep up. Inflation followed but central banks were willing to look beyond these so-called transitory pressures.

Then Russia invaded Ukraine disrupting the global supply of oil, gas, wheat, and other key commodities. Prices soared, and inflation intensified then became more widespread. Policymakers couldn’t ignore it anymore.

Governments were thrown a curveball and left scrambling, trying to balance stimulating growth while not contributing to soaring inflation, creating further unpredictability in global financial markets.

While there is still a long way to go, central banks across the globe have undergone an intense program of interest rate hikes and quantitative tightening in order to stop inflation getting out of control and becoming entrenched in the economy. While those efforts appear to be working, combined with fiscal policies designed to support households and businesses without contributing to the problem any more than they must, there is still a long way to go until policymakers will be satisfied that inflation is sustainably under control.

This balancing act, combined with a worsening global government debt problem, will likely remain a challenge over the course of the decade. Especially given the unpredictability of the war and its trajectory.

Considering this uncertainty, it’s worth understanding how fiscal and monetary policy around the globe operate to contain inflation and support the economy, as this will have a significant impact on currency values and will be key to both long and short term forex trading.

Russia and China driving de-dollarization through oil transactions and BRICS

This could be one of the biggest market shifts affecting forex markets in the 2020s. Russia’s invasion of Ukraine and China’s recent upgrade to the world’s largest economy in terms of Purchasing Power Parity (PPP) has once again brought the US Dollar’s (USD) status as the trading standard into focus.

While unlikely to destabilize the USD, Russia’s insistence on selling gas to its major European customers in Rubles puts a tiny dent in the dollar’s status as unassailable. The European Union (EU) was left in an untenable position, given the dependence of countries like Italy and Germany on Russian energy. They had little choice but to agree to the Kremlin’s demands. By June 2022, Josep Borrell, the EU's top diplomat, commented on how the EU had spent over EUR35bn on Russian gas and oil since the beginning of the invasion.

Add to that the perennial conversation about China pursuing the purchase of Saudi oil in Yuan, and you have further possibilities of a weakening USD. It is important to note that the US no longer requires Saudi oil to meet local demand and the relationship between the two countries has deteriorated in recent years.

To date, these shifts have not had significant impacts on the USD and are unlikely to trigger a sellers’ market in the short term. Still, it is a shift to watch as certain countries look to further reduce their dependence on the dollar and make themselves less vulnerable to US sanctions.

Emerging economies like Brazil, India, China, and South Africa have taken fairly neutral stances on Russia’s invasion of Ukraine, underlining the strength of their bond through the BRICS partnership.

Given the relative strength of these economies in their regions, BRICS represents a clear path toward further non-US trade and de-dollarization in the next decade.

Sentiment and speculation in volatile global markets

Speculation in the face of a pandemic and war is arguably even more unpredictable than when markets are more settled, but it still plays a big role in forex trading.

So how does one get a better understanding of speculation and expectation in such an unpredictable environment?

The obvious answer is to stay on top of the fundamentals and not get distracted by the noise. But technical analysis also offers valuable insight into how traders are assessing the evolving landscape and what it means for valuations. A combination of the two can be useful when analyzing the markets.

What’s more, some currencies offer better access to a wide variety of economic data and analysis which can help you to stay better informed. With that in mind, there are two things one could consider.

1. Currency pairs: The “majors” are combinations of currencies that are widely covered, transparent and offer regular economic updates, central bank decisions and forecasts.

2. High liquidity: Major currencies typically have the largest liquidity which reduces the potential for extreme volatility; although it doesn’t remove it altogether. The opposite can be true of some exotic currency pairs which can bring additional risk.

Supply and demand for currency

When we assess global business trends and international markets against some of the factors listed above, it’s easy to get lost in the conjecture and panic of world politics and one-off events. However, there’s no doubt that the war in Ukraine has caused some major shifts in the supply and demand of currency in forex markets.

Firstly, 2022 was a good year for USD as risk aversion swept through the markets, the Federal Reserve raised rates aggressively and the US economy showed remarkable resilience. While 2023 is off to a promising start for risk assets, there could be many complications ahead that ensures demand for safe haven’s remains strong. Time will tell whether USD remains in that category.

Secondly, there’s the issue of the Russian ruble. Following the initial crash, the Russian currency recovered as the central bank hiked rates sharply and the Kremlin demanded that certain countries pay for its oil in rubles in order to drive demand.

Events that followed, including interest rate cuts and the capping of Russian oil at $60 per barrel, have seen its value fall once more against the dollar to trade close to pre-invasion levels. The start of 2023 has remained volatile for the currency and with the war in Ukraine ongoing and tensions between Russia and the West increasing, that may not change any time soon.

The yen, on the other hand, is a major currency that fell heavily during 2022 as an indirect result of the pandemic and the war that followed. As inflation spread across the globe, it remained largely absent in Japan creating a rapidly widening divergence between the monetary policies of the Bank of Japan and many other central banks, including the Federal Reserve. The yen bottomed against the dollar in October following multiple interventions by Japan’s Ministry of Finance in the currency markets and has recovered strongly since. The path ahead remains uncertain and while other central banks may be finally dealing with inflation, 2023 could be the year it finds Japan and ensures the currency remains at the forefront of traders’ minds.


Forex is the largest and the most liquid market in the world: according to the Bank for International Settlements (BIS) trading in the global FX market jumped to an all-time high in 2022, with daily transactions in April 2022 increasing to $7.5 trillion, up 14% from the same month in 2019.

Volatility is still high at the beginning of 2023, and traders can use a variety of powerful technical analysis and risk management tools accessible on our OANDA Trade platform to find and manage opportunities quickly and effectively.

Apply for a demo with OANDA and start your journey now.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell instruments. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk. Losses can exceed deposits.