Week Ahead – Markets wind down, mind the liquidity gap
XM Group | Dec 23, 2021 11:09AM ET
Brief look at 2022
We have already published our expectations for the FX market in 2022. In short, the three main forces that will drive currencies are changes in central bank policy, swings in risk sentiment, and politics.
It may be a year of two halves, with the dollar performing well early on but then losing its luster as ‘peak inflation’ in the US dampens expectations for powerful Fed rate increases and the Eurozone recovery finally gets rolling. And with liquidity being withdrawn from the global financial system while asset valuations are so high, volatility episodes could become a more frequent phenomenon.
As usual though, the yen doesn’t react to economic data or comments from the central bank. The nation has barely escaped deflation and there is absolutely no expectation that rates will rise in the coming years. Hence, the yen remains at the mercy of global risk appetite and what foreign central banks do.
Then on Thursday, the weekly jobless claims from America are due out, ahead of China’s official PMIs for December early on Friday. The PMIs can often be crucial for China-sensitive currencies like the Australian dollar, especially in light of the troubles in the property sector and the slowdown in the economy.
All told, it will probably be a very quiet week. That said, if we do get any real news, the impact could be much greater than usual.
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