A spectacular decade of currency turbulence amongst the traded major currencies has played out.
Darren Winters explains, the past ten years have been tumultuous, from the 2013 euro sovereign debt crisis to the de-pegging of the Swiss franc, the Swissy CHF from the euro in 2015, causing the CHF to jump 30% in a day.
Brexit, the UK leaving the world’s largest single trading bloc, with a two trillion dollar GDP in 2023, was decided in a 2016 referendum and became official in 2020.
GDP sterling lost 16,6% in 2016 and was the worst-performing currency of the majors that year.
Then, the 2020 global lockdowns caused the USD world’s reserve currency to lose 7.1% in 2020, an unprecedented amount for the year.
The Russian invasion of Ukraine in 2022 escalated into Europe’s first full-blown war since WW2, triggering a sell-everything in Europe.
USD was the best-performing currency in 2022, appreciating 8% that year.
But, the Fed’s most aggressive monetary tightening policy in generations to tackle inflation led to the 2023 Treasury Bond Market Crash, slashing hundreds of billions of dollars from bond portfolio value and collapsing five banks that year.
The Swiss Franc CHF, a safe haven currency, was the top-performing currency in 2023, appreciating 9.9%
A tumultuous decade has led to a period of currency turbulence
Here are the eight most traded currencies;
US dollar USD, Chinese yuan CNY, Euro EUR, UK sterling GBP, Canadian dollar CAD, Australian dollar AUD, Swiss Franc CHF, Japanese Yen JPY
USD was the best-performing currency of the last decade, taking the top spot in six of the previous ten years
The US dollar’s strength was due to a relatively stable economy and the role of the USD as the reserve currency.
How did the USD currency rank from 2014 to 2023?
Year USD Rank
2014 +12.5% 1
2015 +9.3% 1
2016 +4.1% 1
2017 -9.8% 8
2018 +4.2% 1
2019 +0.3% 5
2020 -7.1% 8
2021 +6.8% 1
2022 +8.0% 1
2023 -2.0% 6
2017 Trump presidency, USD ranked eighth lowest. Trumponimics advocates a weak dollar to reduce imports and increase exports, thereby lessening the balance of the trade deficit.
The US public debt was 22 trillion in 2019, and in 2020 Global Lockdowns surpassed 35 trillion US dollars in 2024.
More than 13 trillion dollars has been added to the public deficit since the 2020 lockdowns, and this imbalance in the treasury bond market debased the USD.
In 2020, the reserve currency, USD shed 7.1% of its value, ranking eighth spot, among the top currencies.
The 2023 fallout from the Fed’s unprecedented monetary tightening and the oversupply of treasury bonds due to the unchecked public deficit crashed the bond market, the worst in its 200-plus-year history.
Banking stress collapsed five banks that year, with stress continuing into 2024
The USD lost 2% of its value in 2023 and was the second-worst-performing currency out of the top eight that year.
The Swiss Franc CHF was the top-performing currency in 2023 out of the eight, appreciating by 9.9%.
Investor diversification currencies, avoiding holding all your wealth in assets denominated in one currency, is a wise investment strategy
Monetary policy, geopolitical events, and economic conditions—among other factors—significantly influence currency performance in the foreign exchange market.
Exhibition One examines the best and worst-performing currencies over the decade.
The table shows highs and lows from 2014 to 2023 of the top eight most-traded currencies by volume, according to the Bank for International Settlements.
As noted above, the USD safe haven status resulted in the currency ranking top spot six times over the decade.
The Swiss franc CHF is another safe haven currency, meaning investors will often put money in the currency during periods of instability, such as during the 2014–2016 oil price shock.
But notice how, post-COVID-19, the USD peaked in 2022 in response to aggressive interest rate hikes, though it came off its highs in 2023.
Moreover, a failure to pass healthcare and tax reforms led to the 2017 “Trump Slump.”
The Japanese Yen, a currency struggling against low interest rates
The Japanese yen was the worst-performing currency in the group over the last decade, performing the worst in four of the ten years.
Year JPY Rank
2014 -12.2% 8
2015 -0.7% 3
2016 +2.9% 3
2017 +3.9% 7
2018 +2.4% 2
2019 +1.3% 4
2020 +5.3% 5
2021 -10.4% 8
2022 -12.2% 8
2023 -7.0% 8
Note: Currency performance is measured using a non-USD/USD forex pair. Year-over-year per cent changes were calculated using average mid-point data for December 31st.
Interest rate differentiation between Japan and the US is to blame for the Yen JPY’s poor performance
High interest rates typically attract capital flows into the currency, which tends to appreciate the currency.
So Japan’s near-zero interest rate policy since the late 1990s lowered the currency’s demand, which led to its poor performance over the decade. Near zero interest rate policy put downward pressure on the yen in favour of the USD.
Recent hikes by BOJ and is causing the yen to appreciate causing 20 trillion dollars of carry trades to melt down and triggering a sell-off..
What about other currencies’ movements?
The Canadian dollar (CAD), with a historically positive correlation to oil prices, also suffered in the 2014 oil price slump. But, the link between CAD and oil has collapsed in recent years.
As noted by Darren Winters, Brexit hit the British pound GBP, falling nearly 17% in 2016 to a 31-year low. GBP also underperformed in 2022 following the disastrous fiscal policy announcements to cut taxes, which caused a sovereign debt crisis in the UK, gilts that resulted in the resignation of former Prime Minister Liz Truss.
Despite economic growth hitting a 10-year high, the euro performed exceptionally well in 2017, gaining almost 14%.
Price movements in currencies are complex, and investors should hedge against currency volatility
Monetary policy, acts of nature, geopolitics and even the Great Power struggle, rise and fall of reserve currencies all impact currency volatility.
A robust global economy favours commodity-based currencies, such as AUD and CAD.
Safe haven currencies, USD and CHF, tend to outperform in geopolitical uncertainties, war and economic crises
Holding your wealth in more than one currency is recommended as part of your diversification strategy.