Economic Insights Newsletter

Fourth Quarter 2022 USD reversal?

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Inflation in the U.S. may have peaked, and though it won’t reach 2% levels from 2 years ago, the market sees the Federal Reserve ending its tightening cycle soon.

USDJPY (Neutral/Bullish)


USDJPY has had a nice correction where it looks advantageous to enter a new long position with a tight stop loss. It is important to be wary of the Bank of Japan continued operations of intervening in the currency as it approaches 150.00. The interest rate conditions in Japan and the U.S. still favor a stronger U.S. Dollar, and this could continue into the second quarter of 2023. Japan has not faced the same inflation crisis as the rest of the developed nations, as their current inflation rate is 3.7%. Japan has maintained a zero-interest rate policy through due to more favorable inflation conditions, and they won’t change that now that markets are focusing on the timing of rates hikes to stop and then reverse.

GBPUSD (Neutral/Bullish)


The growth in the United Kingdom has significantly lagged other developed countries since December 2019. GDP growth is -0.4% over this period, the lowest among G-7 countries. The Bank of England has been raising rates to fight inflation that has risen to a 11.1% rate in October. The Organization for Economic Co-operation and Development (OECD) sees U.K. interest rates rising further from 3% currently to 4.5% by April next year, while unemployment will lift from 3.6% to 5% by the end of 2024. Higher energy prices will weigh on consumption and depress growth.

Like the EUR/USD, GBP has seen a significant short squeeze, and has broken the 1.2000 psychological barrier ahead of Thanksgiving. The Daily chart is beginning to look bullish, as market players are anticipating recession in the U.S. and a slowdown in rate hikes. The weight of U.S. policy decisions will take precedent, and though we may see volatility and move lower in GBP, it could be that we have seen the bottom in GBP/USD.

Written by David Grimaldi, TM Foreign Exchange Sales Consultant

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