A year of steep interest rate hiking is behind us. Same time year hardly anybody could have predicted all the factors which made central banks increase interest rates to that high levels making Forex market fluctuate almost all year long. To say the least, in 2022 we've discussed EUR/USD reaching parity! After such a turbulent time, what can we expect from eurodollar, Swiss franc against US dollar, USD/JPY and other Forex pairs? Let's see what are Conotoxia's Santa Zvaigzne-Sproge's predictions for 2023 on the Forex market.
What do you expect from the euro and pound in 2023?
Euro - all significant factors that pressured the common currency lower against the US dollar in 2022 don’t seem to disappear upon entering 2023 - the worsening of the euro zone's outlook amid the deepening energy crisis and relatively timid interest rate hikes despite the excessive inflation may continue to hold the euro currency around parity with the US dollar.
Pound sterling - although recovered slightly from the disastrous fiscal policy announcement that pushed the currency to a record low of 1.04 USD, the pound is not expected to recover to before-2022 levels. Large external financing needs, lower interest rates relative to other major economies, and increasing undersupply of the workforce may hold the pound sterling back.
What can we expect from EUR/USD, CHF/USD, USD/JPY, CNY/USD? What macroeconomic and geopolitical factors will be crucial for currencies in 2023?
All the above-mentioned currencies are highly affected by the monetary policy of the corresponding central bank as well as the Fed (due to the currency pair involving USD). The Federal Reserve is still maintaining (and expected to maintain until at least mid-2023) a hawkish policy of increasing interest rates and lowering the money supply leading to a stronger US Dollar. For a deeper analysis of the US Dollar from such viewpoints as the reserve currency and petrodollar as well as other valuable insights see Conotoxia Ltd. Yearly Outlook available here. <- put link once posted.
EUR/USD: Strong US Dollar in combination with the worsening economic outlook and geopolitical uncertainties in the eurozone may continue to pressure the currency pair to trade around parity.
CHF/USD: As the world, and in particular, the eurozone, may enter a recession in 2023, the Swiss economy, with its sizable current account surplus and having its inflation at a much more controlled level (3% in Switzerland vs 7.1% in the US and 10.1% in the EU in November) is possible to attract funds as they flow away from riskier markets giving additional strength to the Swiss currency.
Read next: 2023 predictions: At the moment, we see numerous factors that have a negative impact on S&P 500 and Nasdaq Composite – lowering money supply in the US and increasing interest rate environment to name a few | FXMAG.COM
USD/JPY: Next year may come with perceptible changes in the Bank of Japan’s dovish policy as its current governor’s term is coming to an end on 8 April 2023. The yen may see increased levels of speculation and volatility as the market awaits a potentially more hawkish governor. Pressure on the Japanese Yen may be posed by the worsening trade balance: Japan has been reporting a trade deficit of over 2 trillion JPY each month since August 2022 (the only time before a deficit above 2 trillion JPY was reported in January 2014).
USD/CNY: Chinese currency has been appreciating against the US Dollar recently due to the easing of the zero Covid policy but is still under uncertainty as due to the reopening of its economy, China has been experiencing a surge in new Covid cases and hospitalization numbers, which may eventually push China to rethink its policy stance.
