Next year will be difficult in the currency markets. You will see fewer trends and more volatility as rates rise, and balance sheets shrink.
To track the factors of 2023 currency markets the factors will be aggressiveness on rate hikes, then the war in Ukraine, Europe, and the energy crisis. Without forgetting China and the risk of the global market. At the beginning of 2023, rates will reach 5%, then there will be Germany’s recession quarters with rising energy prices. China will have weak growth and a tough equity situation. Lower euro-dollar levels would be needed to close the year on a level playing field.
After surging about 25% since the summer of 2021, the dollar fell sharply in November. For 2023 the question is whether this is the start of a new downtrend or whether the factors that pushed the dollar to those highs still have a say. In general, however, the currency markets will see less trends and more volatility in 2023 because the conditions do not seem to exist for a sharp trend of the dollar, also the tightening of financial conditions by central banks, through the increase in rates and the reduced balance sheets will only exacerbate the liquidity problems already present in the financial markets : volatility will remain high.
Francesco Pesole, FX strategist at ING, a Dutch bank
ING considers weakening global activity and trade volume growth to be expected below 2%. The euro-dollar exchange rate will give momentum to the currencies of Europe in general. In terms of commodity currencies, those most dependent on the performance of raw materials, there is China which poses a question on the Australian and New Zealand dollars.
The Canadian dollar is more favorable, while the relationship between the dollar and the main eastern currencies, the dollar/yuan will struggle to sustain a movement below 7.00. The dollar/Japanese yen pair could go to 130 or lower in 2023 with a 2.75% 10-year Treasury yield forecast. The South Korean won is advantageous and will perhaps benefit from the inclusion of the national debt in the benchmarks of global government bonds.
- 2023 to come on the currency markets (we-wealth.com)
