This is definitely not a complete list of events that happened for the year, just a snapshot of the highlights.
What a year it has been for the DXY, starting at around 96.00 and rose to a historic high of 114.75 before retracing back down again. (In comparison, the DXY only rose from 89.65, up to the 96 price level in 2021)
There were many contributing factors to this historic rise in the DXY, and to be fair, a lot of it did not have to do with the performance of the US economy.
On the 21st Feb 2022, Russian President Putin signs a decree declaring the Luhansk People's Republic and Donetsk People's Republic as independent from Ukraine, and, despite international condemnation and sanctions, begins a full-scale invasion of Ukraine.
A flight toward reserve currency/commodity saw the commencement of the dollar bull, with the DXY quickly climbing to reach the 100 price level
17th March 2022, the US Federal Reserve begins on its path to hike interest rates, to combat the inflation rate growth (7.9%)
Toward the end of April, jawboning from Chair Powell, about a 50bps rate hike saw the DXY rocket upward to reach the 104 price level.
In May, with inflation still climbing (8.3%) but GDP now entering into negative territory, the fears regarding a US-led global recession/stagflation begins to mount.
June 2022, inflation is at 8.6% and the federal reserve has just increased rates by 75bps, taking interest rates to 1.75%
The DXY broke through the key price level of 105 a couple of days after the rate hike.
July 2022, inflation has now climbed to a historic high of 9.1%. The impact of the Russia-Ukraine war is felt, not just from a conflict perspective, but the increasing cost of energy, commodity, and food.
The Federal Reserve conducted another 75bps rate hike, with the interest rate climbing to 2.50%.
During this period, most major currencies are losing significant ground against the Greenback, especially the Euro and the Yen, causing central banks to embark on massive interventions.
Given that the DXY had been climbing from 96.00 to approach 110 in 8 months, the markets were keenly eyeing the Jackson Hole event in August, anticipating for Chair Powell to signal the possibility of a pivot in the monetary policy path.
But what we got instead was further jawboning about more rate hikes to come, and a reiteration of the FOMC's commitment to fight inflation growth.
This was probably the last straw, as the DXY continued to rocket upward, blasting past 110 to reach the historic high of 114.75 in September, following another rate hike of 75bps from the Feds. Interest rate now stands at 3.25%
Toward the end of September, improving consumer sentiment data showed that despite inflation growth and increasing interest rates, the economic performance of the US has been resilient.
This provided some market confidence that the Federal Reserve could begin to pivot sooner rather than later, which consequently saw the reversal of the DXY.
In October and November, inflation growth begins to indicate a slowdown. However, the Federal Reserve was still increasing rates at 75bps (interest rates were now at 4.00%).
But as talk about terminal rates increases and the anticipation for a slowdown in the scale of rate hikes, the DXY continues to trade lower.
In December, the inflation rate slows down to 7.1% the Federal Reserve's most recent rate hike was only 50bps, the DXY has retraced below 110 and now trades along the 104 price level.
Is this the beginning of the bearish DXY?
(Please put it in the comments if I've left out any key events) And stay tuned for the 2023 outlook!
BCE can't raise rate as much as the FED , since UE economies are in bad shape and do pay full price for energy-commodity crisis. So if you compare the relative margin of raising rates it's now definitely in favor of the US$. BoJ has made a clever step by increasing the margin of the Yield on Japan Govt bonds but that's a unique situation . China is compelled to lower the Yuan , and this too is in favor the USD .
JinDao_Tai
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@RayCharles, it was a masterful stroke by the BoJ on increasing the margins, caught the market by surprise, essentially doing a lot without doing much :) For the longest time, everyone has been trying to convince me that the time is up for the USD.... but like you said, EU is in a bad shape, China has to stimulate the economy.... UK....well... still a lot to be seen
The_Real_BL
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Merry Christmas and a great 2023 ahead !
JinDao_Tai
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@lohbl1326, looking forward to 2023!! Have a great festive period!
DXY must check the upstairs according to the rules and the US economy is much better than europe or japan. On top USA can defend itself against Russia ans China but Europe and Japan need USA.