The Many (Possible) Directions of FX Markets in 2023

What will this year bring for currency traders?

Currency markets were volatile in 2022. The strong U.S. dollar has put downwards pressure on global liquidity, hurting many developing economies' currencies. FX traders are looking ahead and asking whether the same drivers that moved markets in 2022 remain as powerful. The research below looks to offer some answers.

Podcast: A Time Bomb in Global Finance (INET)

Over $60 trillion in off-the-books currency swaps could pose a massive risk to the financial system, according to a recent study conducted by the Bank of International Settlements.

FX Intervention to Stabilize or Manipulate the Exchange Rate? (BIS)

Focusing on the Brazilian central bank, this study looks at whether interventions through FX swaps have been successful in stabilising the currency in volatile times.

Currency Quarterly: Q4 2022 (Insight Investment)

For compliance reasons, this paper is only accessible in the United States and Canada

The chaos of 2022 will likely linger over the currency markets this year as well, as the forces supporting the U.S. dollar fade, argues Insight Investment.

Podcast: Make Way, USD, It Is Time for The Euro And The Yen (BNP Paribas AM)

The U.S. dollar is expected to lose some ground in the year ahead. Meanwhile, the Euro and the Japanese Yen are forecast to pick up the baton.

Current Account Uncertainty and Currency Premia (Hong Kong Academy of Finance)

This paper demonstrates that currency excess returns can be rationalised as compensation for exposure to current account uncertainty.

Central Banks Are Reassessing Foreign Exchange Reserves (OMFIF)

Central bank foreign exchange reserves are high-profile, state-owned investments. However, these financial instruments can be weaponised in a geopolitically fractured world.

Market Timing and Predictability in FX Markets (Review of Finance)

This study focuses on the importance of market timing in FX markets. It shows that it can be costly to impose leverage and risk limits in the process of portfolio construction.

Trends in Global Currency Markets and Outlook for 2023 (Aegon AM)

Bringing together views on the direction of global currencies, this report offers investors insights into how some of the key FX markets may perform in 2023.

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