Three things to look out for in the 2022 forex market
With economic levels beginning to normalize following relief efforts in many countries dominating the market, the Forex market is beginning to see some positive shifts from the returning G10 economies.
Some economies are slower to bounce back and face more uncertainty, but so far, 2022 is presenting an opportunity for more positive growth.
Below are three shifts to look out for in the Forex market as the start of 2022 approaches.
Oil markets look promising
The global oil demand is rising sharply after hitting a low in 2020. Oil demand expectations have already gone up for the winter after global natural gas prices spiked within the second half of this year, following increases in oil usage for power generation.
Oil markets are expected to receive major capital because of the high stakes energy markets hold in commodity indexes. Take advantage of this promising rise in the Forex market when you find the best Forex broker to provide you with the best access.
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Significant growth is expected to be seen in the upcoming year as air and sea travel levels improve. Consumer inflation has jump-started a major inflow into commodity index products as asset allocators mitigate the rising inflation risks.
Uneven economic recovery in the UK
Britain’s economy is expected to grow by about 4.7% in 2022 as the country undergoes recovery from the pandemic. Still, the growth is anticipated to decline sharply starting in 2023, according to the NIESR. The UK economy is normalizing but faces the threat of slow deterioration.
The GBP/USD will likely move sideways despite the market’s confidence. The rise in interest rates could have a more significant impact once we move into the new year. The GBP is in a vulnerable state to shifting toward a tightening cycle in G10 currencies, especially the USD.
The biggest challenges are in response to the continuation of Brexit frictions as we enter into the second year of a global economic downturn.
Ongoing negotiations with Northern Ireland over the protocol are also factors leading to low expectations of the UK’s interest rate.
Stronger US dollar
According to positive economic data, the USD is expected to be the favored currency heading into the beginning of 2022. The G10 economies are recovering amidst the growing concerns over inflation, with people excited to get back to their everyday lives, contributing to their local and global economy.
Analysts predict that the GBP will hold onto its 2021 recovery, but the US, ahead of Canada, is expected to see a very positive output gap for 2022. The global economy is gaining back its confidence as many policymakers have achieved their economic goals for the year.
Although this is all good news for the US, the USD’s dominance in the market has repercussions globally, affecting developing nations the most. A strong USD means prices for commodities used in the US will follow the inverse pattern to the movement of the dollar.
External trade accounts from emerging economies will be experiencing secondary implications from the dominance of the USD in the market.
Looking ahead
The focus for many countries as we approach the start of 2022 is continued economic recovery with the hopes of returning to as close to normal as possible. Some countries like the US are making a quicker economic comeback with the strengthening of the USD, while the GBP trails behind with inconsistent growth amidst ongoing political tensions.
