Author: Julia Horowitz
Article: Original article
Publication date: Tuesday, November 22, 2022
The story of financial markets and the global economy this year has been supplemented by a dramatic rise of the U.S. dollar, whose inexorable increase shook the world. However, its extraordinary rally may finally be coming to an end.
The dollar lost more than 4% this quarter, pulling back from a 20-year high hit in September. According to Societe Generale, last week investors got bearish on the U.S. dollar for the first time since July 2021.
Goldman Sachs strategists stated in their released 2023 forecast that markets are eagerly awaiting signs of a fundamental shift, and investors are increasingly wary of missing out, as corrections after peaks tend to be swift and steep.
What has changed?
First of all, there was an unexpected U.S. inflation data, which showed that prices rose more slowly than expected in October. This bolstered expectations that the Federal Reserve might soon lower interest rate hikes.
Secondly, there is growing optimism that China may be preparing for an easing of restrictions related to the coronavirus. The government is also taking steps to address the crisis in the country's real estate sector. In addition, warm autumn weather in Europe has reduced concerns about energy availability this winter, leading to a slightly more optimistic economic outlook.
Of course, there are huge risks.
China continues to fight hard against Covid, although investors are desperately hoping that President Xi Jinping will change his approach soon. The main uncertainty remains around the Federal Reserve's plans.
The euro rises against the dollar over the long term (in the absence of implementing risks).