One surprising feature of the pandemic so far has been the relative stability of exchange rates. Indeed, exchange rate volatility has been procyclical historically, tending to increase in US recessions.

An NBER working paper, co-authored by international macroeconomist Kenneth Rogoff, shows that this phenomenon is actually part of a longer-term secular decline among the three core currencies (dollar, yen, euro). And this decline has become particularly apparent for the EUR since the long-term interest rate hit zero in 2014 (Chart 1).

Exchange rate stability is also evident when compared with other assets. Against stock, oil and commodity price volatility, the declining trend in exchange rate volatility is even more pronounced. In fact, relative to the stock market, March 2020 had the lowest exchange rate volatility on record (since 1950). Using breakpoints, the authors show that ER stability has even accelerated during the pandemic.