Pound (GBP) to Struggle amid Bleak Outlook for UK Economy?
The Pound (GBP) could face an uphill battle through 2023 amid a gloomy outlook for the UK economy. A key focus for GBP investors in the coming months will be on the depth of the UK’s current recession. Signs of a prolonged downturn will no doubt drag on Sterling sentiment.
The Bank of England’s (BoE) exit from its current tightening cycle will also be in the spotlight for GBP investors. Economists speculate the BoE may call time on its interest rate hikes at its first meeting of 2023, which could take a significant toll on the Pound.
Euro (EUR) Movement to be Complicated by War in Ukraine?
The Euro (EUR) is likely to remain highly sensitive to headlines pertaining to the war in Ukraine throughout 2023. The prospect of a new Russian offensive could infuse some notable volatility into the single currency at the start of the year.
On the other hand, the European Central Bank’s (ECB) commitment to continue raising interest rates through at least the first half of 2023 could act as a key pillar of support for the Euro. Although this could be thrown off by a Eurozone recession at the start of the year.
US Dollar (USD) to Resume Bullish Run in Face of a Global Recession?
The threat of a looming global recession could bolster safe-haven demand and see a return of a strong US Dollar (USD) this year, particularly if the US economy enjoys a softer landing than other parts of the world.
The Federal Reserve’s monetary policy could also boost the US Dollar if they remain hawkish in 2023. Fed Chair Jerome Powell signalled last month that the bank’s terminal rate may be higher than previously forecast.
Canadian Dollar (CAD) to Become Less Sensitive to Oil Price Volatility?
Oil price dynamics may continue to influence the Canadian Dollar (CAD) in 2023. Russia’s invasion of Ukraine as well as the reopening of the Chinese economy could continue to drive volatility in the price of oil.
However, CAD’s decoupling from oil prices may continue over the course of 2023, with the ‘Loonie’ instead being driven increasingly by a positive correlation with the US Dollar.
Australian Dollar’s (AUD) Fortunes Tied to Success of China’s Reopening?
The reopening of the Chinese economy could help to bolster the Australian Dollar (AUD) in 2023. However any gains for the ‘Aussie’ could prove limited if Chinese Covid case levels continue to soar.
A more dovish Reserve Bank of Australia (RBA) could weigh on the Australian Dollar (AUD) in 2023. The Australian economy showed signs of slowing in the second half of 2022 which may result in the RBA halting its tightening cycle early this year.
New Zealand Dollar (NZD) Vulnerable to an Economic Downturn?
The New Zealand Dollar (NZD) could struggle in the coming months as the Reserve Bank of New Zealand (RBNZ) has forecast a sustained slump in domestic growth will plunge New Zealand into a recession in 2023.
Elsewhere the ‘Kiwi’ will remain sensitive to commodity price movement as well as the reopening of China, which is a key trading partner for New Zealand.