Like geopolitics in general, it's unlikely that American politics will strongly affect the dollar in 2023

After hearing from Michael Stark from Exness about stock market, precious metals and crypto, it's time to discover his views on the Forex market - euro, pound, US dollar and pairs.

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What do you expect from euro and pound in 2023?

The euro's recovery against the dollar seems likely to continue. While the situation for the economy in the eurozone isn't rosy by any means, it seems to be a lot less bad now than had been expected over the last couple of quarters. The ECB also probably has some way to go on rates and is likely to go above 3.5%, even if not for very long.

The outlook seems to be more negative for the pound given that inflation in the UK is higher and overall economic conditions, particularly the job market, are weaker compared to the EU and the USA. Whether that actually translates into another sustained downtrend for the pound is an important question because the dollar index probably also has more room to fall in the next few months.

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?

In general, the dollar's losses are likely to continue to some degree against most other currencies unless there's some significant change in the outlook for inflation or monetary policy. The possible exception is dollar-yen because the Bank of Japan's interventions and general comments and statements have been more unpredictable than usual so far in 2023. There's also April's change in leadership at the BoJ which might bring a shift in policy.

The focus for most participants in forex markets this year will probably remain on economic conditions, specifically possible early signs of the severity of the recession, such as job data, PMI and similar. However, monetary policy and inflation are still on the radar too given that the ECB and others are gradually catching up to the Fed.

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It's difficult to predict how geopolitics will develop this year, but a sudden denouement in the Russo-Ukrainian war seems very unlikely in the next few months at least. Increasing tension between China and Taiwan is always a possibility but this probably wouldn't have a strong effect on forex markets.

What macroeconomic and geopolitical factors will be crucial for the dollar in 2023?

As noted earlier, the main focus for the dollar is the possible recession and how severe it might be, or indeed whether it will occur at all. The Fed's slowing down of rate hikes and decreasing rates of inflation are also important, with the main question here specifically how long the Fed can sustain rates around 5% or more given the size of the USA's national debt.

Presidential elections coming up next year are likely to be in focus later in 2023, specifically whether President Biden will stand for reelection and who will challenge Donald Trump for the Republican nomination. Like geopolitics in general, it's unlikely that American politics will strongly affect the dollar in 2023 unless there's some major surprising event but developments might give hints on what to expect next year.