Forex is one of the most popular known trading platforms. According to a survey by the Bank of England, foreign exchange turnover has reached about $2.98 billion in 2021. It was remarkable in a way that there was a 20% increase within one year. The question is what drove the Forex market in 2021 and what are the major factors that will affect it in 2022? Let’s see the new trends and check the factors which will drive the market in 2022.

 

Contents:

Factors that Moved Market in 2021

What to Expect in 2022

Inflation

The New Strain of COVID-19

Strengthening of USD

Final Thoughts

 

Factors that Moved Market in 2021

Of course, COVID-19 and inflations were the major factors having a significant impact on the market. Although business and several industries were on the verge of collapse, Forex continued to thrive.

 

Thanks to the online trading apps, Forex grew with new accounts and a surge in monthly trading volumes. As opposed to the opinions of most industrialists, Forex traders have made more money and gained 3 times more clients than before the pandemic. Simultaneously, the Forex traders mentioned that the pandemic brought an increased chance of risks. Also, the market has seen some major fluctuations in certain currencies, therefore, 2021 saw the use of major strong currencies that didn’t crash due to the pandemic.

 

Another factor that came in the wake of the pandemic is an individual investment. Instead of using investment banks or commercial mediums, people chose to place trades themselves. As a result of remote entrepreneurs, this factor was one of the most significant during and following the pandemic.

 

The use of internet forums and apps have also increased due to the new generation of traders who get their information from the internet. Combining trading and advanced technology has proved to be quite important to help millennials trade.

 

Finally, the most exciting factor was the rise of e-trading. COVID-19 and the increase in millennials as traders have led to the development of e-trading websites and apps. They work similarly to the offline one except you can do everything from home. The apps are equipped with real-time data, analytics, and investment news which help you to follow the ups and downs in the market. Apart from the commercial apps built by the big companies, there was a rise of apps developed by individuals or start-ups which provided secure connections and up-to-date analytics.

 

What to Expect in 2022

The top trends and factors of 2021 will be driving the market in 2022. The whole world has seen inflation like never before which is going to be the driving force and a changing trend for 2022. Following are the things you may expect in the coming year in the Forex market.

Inflation

As already discussed, it is going to be a major driving force for the Forex market. Traders and investors are always searching for inflation cues based on which the interest rates might be increased or cut down. An increase in interest rates is good news for the market while the decrease brings the currency down. The market and the economy is re-opening slowly which has to bottleneck supply chains and a surge in energy prices.

 

For the last 30 years, consumer prices in the US are the highest right now (about 6.2%). Central Banks commented that the inflation was transitory but the Federal Reserve Chairman mentioned that the inflation is here to stay and that bond purchases and interest rates might increase. Therefore, going by the Federal Reserve, 2022 will see a rise in interest and a stronger economy.

 

England is also looking forward to a growth in the market similar to the trend in the US. The European Central Banks on the other hand took an antagonistic stance by saying that this inflation is temporary. According to the European Central Bank, inflation might fall back to 2% in 2022.

 

The New Strain of COVID-19

Another thing to watch out for would be the Omicron strain of COVID-19. It might derail the economy which took almost a year to gain back the confidence. Although the severity is low and the 3rd dose of vaccine has a neutralizing effect on the vaccine, it still threatens the market. Therefore, Forex traders must look out for the action of the Central Bank and the divergences.

 

Strengthening of USD

Based on the Federal Reserve, Canadian Imperial Bank of Commerce, ING and other Central Bank analysts, strengthening of the USD is a definite trend in 2022. The interest hikes and moderation in global growth will make USD a stronger currency as compared to others. 

 

These analysts also forecast that the Australian dollar also has a chance to become stronger as per the data but Euro and Japanese Yen seem to be vulnerable in 2022. Some currency analysts, on the contrary, believe that the US dollar will weaken in the second half of 2022 as the inflation cools down and the economy stabilizes.

 

Final Thoughts

We can say that the Forex market has increased opportunities, as well as risks, are given the unpredictability of COVID-19. It is easy to forecast and use the previous data in a stable economy. But based on the above-given information, we can say that the dollar seems to be a strong currency to do most of the trading. That way you have fewer chances of losing your money. COVID-19 might bring unpredictability but it has also brought inflation and rate hikes which had a positive influence over the Forex market.

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