A report issued by the Research Department of the Equity Group revealed that there are 4 factors that will qualify the US dollar on the throne of the world’s winning currencies during 2022, noting that the most prominent of these factors are tightening monetary policy and raising interest rates.
During 2021, the US dollar was able to achieve its best performance in 6 years, as the US dollar index, which measures the performance of the currency against 6 major currencies, rose by 7%, amid investor optimism that the Federal Reserve would approach interest rates very soon as a result of high inflation to its highest levels. Decades ago caused by the massive stimulus programs that have been injected since the pandemic began.
With the beginning of 2022, the US dollar continued its gains, benefiting from the rise in government bond yields, with the Federal Reserve heading to tighten monetary policy, as the markets price the first rate hike next March, provided that there will be about 3 rate hikes in the new year.
According to the report, with all these data, the US dollar may be one of the most profitable currencies in 2022, and through the following, we learn about the reasons that may support the strength of the US currency, which are as follows:
1- Inflation
Inflation rates in the United States rose to a 40-year high in November at 6.8%, the ninth consecutive month in which inflation is above the Fed’s 2% target, and is expected to continue rising in the last month of 2021, which will prompt the Fed to act Actually, it is on the way to raising interest rates and thus supports the strength of the dollar.
2- Fed’s moves
The Fed began reducing the $120 billion asset purchase program last November by about $15 billion, and then took a decision to cut $30 billion from January to March to end that program, and this matter strongly supports the central bank’s tendency to raise interest rates, amid expectations that The number of interest rate hikes will reach 4 times in 2022.
US 10-year yields rose to their highest level since January 2020 at 1.75%, which is sensitive to interest rate hike expectations.
3- The improvement of the American economy
The US economy grew in the third quarter of 2021 by 2.3%, amid expectations that the economy will expand at a faster pace during the last quarter of last year, which may lead the economy to achieve its best performance since 1984.
In the same context, the labor market continues to show its strength despite the slowdown in job additions in December, as the economy added only 199,000 jobs versus expectations that it would add more than 400,000 jobs.
During 2021, the economy added a record 6.4 million jobs, and since April 2020, 18.8 million jobs have been added, but it is still about 3.6 million jobs less than its pre-pandemic levels.
Also, unemployment fell to 3.9%, its lowest level since February 2020, in a clear indication of the strong recovery in the labor market driven by the rapid recovery of the economy and strong demand for labor, and it is expected that over the coming months, companies will fill vacant jobs on a large scale with the spread of vaccines and the opening of companies and factories to work. to a greater extent.
4- The role of the euro
The euro represents a large percentage in the dollar index, and the European Central Bank is not currently considering tightening its monetary policy, which may strengthen the US dollar further, although the bank announced that it will end its emergency asset purchase program in March, but on the other hand it will strengthen its purchase program The underlying assets which could weaken the Euro.
2022
The report pointed out that in light of the continuous indications and hints about the Fed’s tightening of its monetary policy and pricing the markets for raising interest rates sooner than expected, it may put the US dollar at the top of the currency market during 2022.
He pointed out that with the widening of the interest rate differentials, this will give an advantage to the dollar over its peers, for example the euro and the Japanese yen.
He explained that despite the uncertainty about the Omicron mutator and its impact on the recovery of global economies, there are many factors that put the dollar on the path towards achieving an exceptional year with the Federal Reserve heading to tighten its monetary policy, strong labor market data, and the continued expansion of the economy significantly during Next period.
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