Central banks had been adopting a similar stance, insisting that inflation was transitory. At the end of November, the Federal Reserve Fed adopted a more hawkish stance. Fed chair Jerome Powell told the Senate Banking Committee that the word transitory could be retired from use with inflation. Powell also said that the tapering of bond purchases could be accelerated, which would mean interest rates could be hiked sooner.
His comments lifted the US dollar. Should inflation continue to grow and the Fed turn more hawkish, the US dollar could rise in The Bank of England BoE has also adopted a more hawkish stance in recent weeks. It is also worth noting that the Japanese yen has been the worst performing G10 currency across the year. The relatively risk-on trading environment for most of combined with a very dovish Bank of Japan has kept the Japanese yen pressurised. There is a growing risk that the resurgence of Covid may derail economic recovery.
Omicron, the new coronavirus strain, which is highly mutated, appears to be spreading across the globe rapidly. So far, little is known about the strain. Initial findings appear to be encouraging, with US medical advisor Dr Fauci saying that symptoms from the new strain show less severity.
Pfizer has also said that three doses of its vaccine will neutralise Omicron, which is certainly a step in the right direction. As long as the Covid risk remains in check, performance in the forex markets next year is likely to be focused on central bank action and divergences.
In their forex forecast , the major investment banks broadly agree that the US dollar can look forward to another strong year in But what about the other currencies? Analysts at HSBC see the USD strengthening further in the coming year, supported by the Federal Reserve progressing towards monetary policy normalisation and moderating global growth. They say:. HSBC analysts also consider that the euro is vulnerable against the stronger US dollar, given that no rate hike is expected by the ECB until late , and even that seems optimistic.
However, they also believe that some currencies will hold their own against the stronger greenback, such as the Australian dollar. They expect that the Reserve Bank of Australia could adopt a more hawkish stance, given the strength in recent data. Analysts at ING also expect the US dollar to outperform its major peers, including the euro and the yen, noting:.
With regards to the pound, ING analysts forecast that it will sit somewhere between the stronger US dollar and steady commodity currencies. Speaking of the Japanese yen, they remain bearish on the currency, while they see the Australian dollar benefitting from being undervalued and oversold, although they warned that this could be a risky trade. In line with the other banks, they expect the euro and the yen to underperform. Interestingly, they also believe that the Canadian dollar could weaken in the coming year.
While most agree that the US dollar could trend higher in , some analysts see the greenback weakening in as supply chain bottlenecks ease and inflation cools. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose. It is impossible to predict exactly what the forex market will do. However, it is possible to use tools, such as fundamental or technical analysis to build an idea of how a currency pair might react to particular news or data, or how the pair could respond to certain price levels in the market.
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Is it possible that inflationary pressures have peaked? Additionally, with Q1 GDP coming in a contraction instead of expanding, is there reason to doubt the economy should see higher borrowing costs? Fill out the form below and a Monex USA market expert will connect with you shortly. Fill out the form below and a Monex market expert will connect with you shortly.
Login Email Email. Monthly Currency Outlook. Dollar climbed 4. Gross Domestic Product for Q1 shrank The current conflict and the uneven recovery from the worst of the COVID infections after two years are forever changing the dynamics of the globalized world that we had worked under previously.
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Possibly, today the pair may expand the range up to 1. Later, the market may continue trading downwards with the target at 1. Later, the market may fall to break 1. Ichimoku Cloud Analysis The instrument is currently moving inside Ichimoku Cloud, thus indicating a sideways tendency. Early in May, there was a similar test of the cloud, which resulted in a further downtrend Later, the m Today, the pair may correct with the target at 1.
Later, the market may then start a new decline towards 1. Later, the market may correct to correct towards 1. Later, the market may correct to return to 1. Later, the market may grow to return to 1. If later the price breaks this range to the downside, the market may form a new descending structure with the target at 1. Later, the market may form a new descending structure to return to 1. Later, the market may start a new correction towards 1.
After that, the instrument may start a new correction to return to 1. After that, the instrument may start a new correction with the target at 1. Possibly, the pair may expand the range down to 1. After that, the instrument may correct to return to 1.
Informed gold and currency forecasts can help you with your strategy and analysis, minimizing risk and maximizing returns. Predictions can be based on. Follow all the latest forex news, trading strategies, commodities reports & events at DailyFX. The Forex Forecast Poll is a sentiment tool that highlights near- and medium-term price expectations from leading market experts.