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The outlook for the forex markets in 2022 appears to be positive.
If there is one word to define forex trading in 2021, it has to be volatility. In the previous twelve months, forex trends were distinguished by numerous price fluctuations, market jitters, and innovations. Now, as we approach the new year, let’s have a look at what will be popular in the currency markets in 2022.
Leading economies all around the globe are striving to adapt to a volatile market climate. As a result, the global financial market mood is rapidly swinging from optimistic to negative and vice versa.
Nonetheless, there are tendencies to be noticed in the movements of major currencies such as the US dollar, the euro, and a few others during the year. Based on what happens in the coming year, these forex patterns may be strengthened or invalidated. We examine all of the potential outcomes for the FX markets in the next months.
EUR/USD: A Currency Pair Defined by US Dollar Strength
First, we’ll look at the most widely traded currency pair, EUR/USD. The EUR/USD exchange has been under pressure over the last year, owing mostly to a stronger US currency. In that setting, the strength of the US dollar had an influence on practically all significant currencies in the currency market.
The EUR/USD, in an instance, has lost almost 8% this year. In other words, one euro would purchase $1.2250 in early January. The euro is trading at $1.1250 as the year comes to a close.
This is attributable to a number of significant causes. The dollar, for example, has been strengthening as the US economy has recovered from its epidemic lows. Businesses and customers surged back into the economy once the reopening process gathered pace. As a result, the dollar became a popular commodity in global markets.
Looking ahead, economic factors suggest that the US dollar will continue to rise. To be more specific, the US Federal Reserve is planning to hike interest rates. While this action is expected to reduce stock valuations, it may drive speculators to seek safety in the dollar.
Is the USD poised for more gains in 2022?
Not only that, but the US dollar serves as the world’s reserve currency. This, by definition, provides it with great purchasing power and geopolitical clout. In summary, the dollar’s reserve currency position is one of the most powerful tools in the US’s arsenal.
This, however, does not necessarily imply that the dollar will continue to rise in value in the future year. There are also some concerns about the world’s largest economy and the value of the dollar. For example, the Fed is poised to reduce its monetary assistance, which will most certainly cause some market disruptions.
Furthermore, the Biden administration’s projected economic boost has already met with some stiff opposition. To that sense, passing more money to stimulate the economy is on a precarious footing. In this scenario, the EUR/USD may decide that it is time for some euro gains. On this front, the European Central Bank continues to provide monetary support to its economy.