Which fiat currencies can lead to a loss of money in 2022–2023 — DotBig review
2022 was very interesting for forex traders, mainly because a lot of assets showed big fluctuations throughout the year. The major reasons were:
- the unjustified Russian invasion of Ukraine;
- growing interest rates;
- the post-pandemic crises;
- the global recession.
Thus, many currency pairs at forex were impacted both positively and negatively.
In today’s review, we would like to discuss the most volatile currencies of the year. These assets might be risky for trading in 2023. If you want to benefit from forex trading in 2023, consider that the following currencies can cause a money loss.
5. United States Dollar (USD)
This is very unusual for us to list the United States Dollar in the list of the most volatile currencies of the year. Nonetheless, the passing year wasn’t the most successful for the USD. The reason for this is that the policy of the U.S. Federal Reserve became more restrictive. Since this institution is the major driver of the USD value, the change of practices made the currency more volatile than before. The reason for this is that the Federal Reserve started limiting the supply by implementing Interest Rate Hikes and Unwinding The Balance Sheet.
This year, the Federal Reserve moved the interest rates. Before 2022, such rate hikes haven’t been performed since 2018. At the same time, the Federal Reserve reduced its holdings of US Treasuries.
These practices were performed for a particular reason. The inflation exceeded 8%, which wasn’t seen for long years. So, the Federal Reserve had to take action immediately. They implemented the above-mentioned devices and although the USD Index rose over 14.5% by the end of August, it managed to remain one of the strongest instruments among the major currencies.
4. Euro (EUR)
In the middle of the year, the inflation in the EU exceeded 8.8%, which obviously made Euro more volatile. Considering the strong recession and the concerns about economic instability, the European Central Bank was forced to act immediately.
In July, the decision was made. The ECB decided to fight inflation by raising three key interest rates by 50 basis points, which is twice higher than the US Federal Reserve did. The main goal of these rate hikes was to stabilize inflation to the point of 2%.
To make it more understandable for you, we have to specify that such steps haven’t been taken by the European Central Bank for 11 years, since the Global Crises that started in 2008. COVID-19 was one of the accelerators of the current crisis in the eurozone so after its end Euro price started performing huge fluctuations.
Here is how the EUR pair performed throughout this year:
- The EUR/USD pair performed a 10% decline.
- The EUR/JPY currency pair impressed traders with a bullish run, bringing a 4.39% gain in March.
- The EUR/CAD pair suffered as a result of the crude oil prices increase and showed a 9% fall.
3. British Pound Sterling (GBP)
The UK monetary system faced the biggest volatility at the beginning of 2022. Similar to the US Federal Reserve and European Central Bank, the Bank of England was forced to tighten its monetary practices and make them more restrictive.
Although the GBP was the most volatile in the first half of the year, the biggest change by the BoE was implemented in August. The institution decided to perform a rate hike from 1.25% to 1.75%. Such an interesting move hasn’t been performed for more than a quarter of a century!
As a result, the UK economy faced the highest inflation over the last 40 years. This was one of the factors why Boris Johnson resigned. The next UK Prime Minister, Liz Truss, didn’t manage to cope with the issue as well, so she also resigned less than two months after being elected.
From this, we can draw a conclusion that the GBP currency pairs at forex were quite unprofitable for traders. Just consider that the GBP/USD pair lost over 10% over the course of the year. The biggest decline was reported in April — the pair lost 4.31%.
2. Japanese Yen (JPY)
Similar to the above-mentioned institutions, the Bank of Japan had to find solutions that would help to fight post-COVID inflation. However, unlike the Federal Reserve, ECB, or BoE, it didn’t increase interest rates. It decided to keep them as low as possible and continues buying bonds. Time has shown that it wasn’t the right strategy in such a situation. As a result of these practices, the USD/JPY pair hit 135.6, which is the worst performance of the Japanese Yen over the last 24 years.
The value fluctuations of JPY were so impressive that the currency didn’t manage to hold its value not only against GBP, USD, and EUR but against AUD as well. There was a period when the pair hit 93.08.
1. Russian Ruble (RUB)
The worst thing you could do on Forex at the beginning of this year is to buy the Russian ruble. On the 24th of February, Russia invaded Ukraine, which provoked an immediate response from the EU, UK, and USA. They quickly imposed severe sanctions against the Russian monetary system and almost banned the majority of commodity supply chains.
As a result of sanctions, imposed because of the unprovoked invasion, the Central Bank of Russia increased interest rates up to 20%. The Russian government tried to take different steps to make the RUB stronger. For example, they demanded the importers of their gas pay in rubles. Although this helped to stabilize the situation in Spring, this also made the currency extremely volatile. Actually, RUB is the most volatile currency in 2022 and is likely to remain the same the following year.
To sum it up, the forex market faced incredible challenges in 2022. The biggest war of the 21st century, post-pandemic crisis, recession, commodity scarcity, and more made even the most stable currencies very volatile.
If you want to know the reasons for such changes and be aware of how to react to them, follow this blog!