In 2022, the Federal Reserve may again be dovish, weighing on the dollar
Money Elam, el most powerful bank in the world it remains the number one force moving the currency markets, and possibly the global economy. In 2021, the sea change was based on higher inflation and a robust labor market, which allowed prices to rise further.
In any case, by 2022, the North American entity can return to its moderate roots. On the one hand, it is based on the appointment of Lael Brainard as vice president. And on the other, it has to do with betting on a cooler inflation and slower growth.
Easier supply chains could lower global inflation and improve mood
The founder of Forex Crunch assured that it is possible that world inflation “It has already peaked in November this year”, keeping in mind that GM’s car factories returned to full operation. “Chip shortages, which are hitting the auto industry hard, are declining thanks to higher production.”, he pointed.
“Efforts to unclog the critical ports that link the world’s largest economies are also paying off. Los Angeles, Long Beach and Tianjin, on the other side of the Pacific, are under less pressure. The Baltic Dry Index, a global indicator of shipping costs, has drastically fallen“he added.
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Kindness: FM Live Córdoba
Covid-19 is likely to appear during the year, but will prolong its withdrawal
“When will the pandemic end?”, was the question that originated the third factor. “The whole world is made, and with each variant or outbreak, it is harder to find an answer“, answered.
Taking into account the global advance of vaccination, which declined from serious diseases, Elam predicted that “Immunization is likely to be abundant”.
Faced with the pandemic and how it influences the dollar, the analyst replied: “Negatively, in two ways.” First, an optimistic mood in the market that would stem from a healthier world is pessimistic for the safe haven dollar. Investors are quick to seek riskier assets in good times. And secondly, it would push consumption towards services and away from goods, alleviating inflationary pressures. An action that also would weaken the dollar and the urgency of the Fed to tighten policy.
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Gentileza: Mental Floss
Rising geopolitical tensions could offset dollar sales
China and the United States have been at odds for years. And the pandemic has only strengthened the need for those massive economies to decouple, a process that can be accelerated in 2022. Added to the mounting political tensions that could further separate the economies.
For Elam, mutual pressures could also influence China’s five-year change of leader (XI will break tradition and last longer) and the US midterm elections. “The oldest trick in the political book is to focus on external enemies to forget about local problems”, he expressed.
The strained relations could drive inflation higher and the Fed toward a tighter policy that boosts the safe-haven dollar.
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America’s midterm elections mean Democrats will scramble to legislate
The last factor is the mid-term elections to be held in November. Democrats have a small advantage in the House and the smallest of the majorities in the Senate, which is very likely to disappear.
President Joe Biden’s party almost always loses seats in these votes. For Elam, “Voters are frustrated with the president’s handling of inflation, Afghanistan and other issues. “. “By winning a chamber, Republicans are prepared to block any legislative movement“he added.
“The stalemate that will occur in 2023 and 2024 will likely push Democrats to make lasting changes in 2022. These could include eventually passing your social spending bill and perhaps higher taxes. Investors don’t like to pay, and any attempt to increase costs could hurt stocks and drive the dollar up, “he concluded.
Source From: Ambito
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