Global recession - How does it affect on the currencies? ?

Question

If we all go down together, how will this affect on currency exchanges?

It seems the values of the currencies will remain the same as today.

Is my understanding correct?

Or, are there any other scenario or issues I should consider?

Answer 1

currency rates depend on several things, like growth prospects and interest rates. If a slowdown is global and prospects for economic growth decrease in all currency areas at the "same" pace, then indeed currency rates should remain unaffected. However, the currency of on currency area might be more or less sensitive to changing economic conditions, for instance if level of interest rates ore actual growth rates are different (...). This means that a slowdown that does not affect currency rates (by hypothesis), might be slightly different for different countries. Also, currency areas do not correspond to country borders. Some countries are "dollarised" or otherwise part of a currency area. To make it shorter: if growth decreases everywhere in the world I would not bet on any particular currency suffering more than others.

Answer 2

In currency exchange, the banks trade by buying one currency and selling off another currency. e.g., you buy euro and sell off US dollar, buy yen and sell off dollar. Global recession would mean when one country weakens economically, then another should strengthen. so for all countries to weaken wouldn't make much sense. Unless a world castrophe or one world currency, then we'd all be in trouble with ur scenario.