2022 currency predictions

After two years of being dominated by the Covid pandemic, the currency market looks likely to find direction from fresh catalysts in 2022.

The ongoing surge in global inflationary pressures will be a key focus for investors in the first half of the year. There is considerable debate as to how persistent these pressures will be, but many analysts are warning consumers face a cost-of-living crisis this year amidst sharp rises in energy and grocery costs.

In an effort to curtail inflation – which is currently printing at multi-decade highs in the world’s largest economies – most of the major central banks are expected to aggressively tighten monetary policy in 2022.

The expectation for multiple interest rate hikes from the Federal Reserve and Bank of England are likely to help underpin demand for the US dollar and the pound this year. On the other hand, the European Central Bank’s resistance to raising rates looks to limit the upside potential of the euro.

Heightened geopolitical tensions will also be a key theme this year. Conflict between Russia and Ukraine as well as US-China tensions over Taiwan could infuse some notable volatility in currency markets and funnel investors toward safe-haven currencies like the US dollar in the coming months.

At the same time, there will be a number of notable political risk events which could influence exchange rates in 2022. A French general election and the US midterms will drive movement in the euro and US dollar later this year, while doubts over the future of UK Prime Minister Boris Johnson may drag on Sterling in the meantime.

Of course, while the worst of the pandemic may now be behind us, Covid has been known to throw up a few curveballs over the past two years and the emergence of a new variant will remain a threat to currency market stability in 2022.

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