2022 has been a year of economic volatility, with the current geopolitical climate and the rising inflation worldwide, which has inevitably impacted the Forex markets. Here we will discuss what the outlook for the FX markets is going into 2023.
Current FX Market
The British economy and the pound sterling have certainly taken a hit this year. The pound/GBP reached its lowest level on record against the USD since its low in 1985. Inflation rates in the UK rose by a massive 11.1% in the past twelve months. The United Kingdom’s economy is projected to decline by a further 0.01% and fall into a recession in 2023. In July 2022, the Euro and the USD reached an equal value for the first time in 20 years. With mounting fears of an energy crisis already being felt in parts of Europe and a looming recession, the Euro will continue to struggle into the start of 2023.
If you are new to forex trading, you don’t need to necessarily be put off by the current volatile outlook, as there are still opportunities in FX. For all beginners, especially in our current climate, it is advisable to use a fully regulated broker that offers access to a range of assets for a diversified portfolio – detailed reviews and analysis of UK forex brokers can be found here. It is best to look for opportunities with currencies with growth potential. For less experienced traders, a good option in such a volatile market is choosing a broker that offers the ability to copy FX trades of skilled and knowledgeable traders who have experience dealing with such volatility.
The US dollar is the most liquid currency in the FX markets and is widely used worldwide for all foreign exchange. 2022 saw the US dollar reach its highest point since the early 2000s. But this is not necessarily good news as its impact on the world economy is complicated, to say the least, and the knock-on effect will be that the dollar is likely to weaken again next year.
Since 2021 the US Federal Reserve has been implementing a hawkish monetary policy in an attempt to stay on top of the soaring inflation rates, and it does not seem like this is going to change any time soon. It is expected, however, that the Federal Reserve will start to cut rates around the middle of 2023. With the current global economic environment looking less than positive, the forecast is that the trade growth globally will be somewhere below 2%.
Forex in 2023
Forecasters are predicting that the risk of recession in 2023 remains high for major economies, including the United Kingdom, the European Union and the United States. In order for the US dollar and other currencies to stabilize, inflation would need to cool off and the geopolitical situation to improve, instilling confidence that growth will return to the markets. As we get closer to the end of this historic year, significant improvements seem unlikely, at least in the first quarter of 2023.
A diversified portfolio is a great way to ride the current economic downturn and rising inflation. Realistically, the volatility in the Forex markets will remain well into next year, and investors need to take a more defensive approach.