The past year thoroughly shook the financial markets and had a lasting impact on the Forex market. As OctaFX celebrates its 12th anniversary, the company took this opportunity to compile a list of the most important events in the world of finance, along with their implications for investors and traders in 2023 and 2024.
1. The end of the U.S. Federal Reserve interest rate hike cycle.
Starting in March 2022, the U.S. regulator began tightening the monetary policy to combat accelerating inflation. Ten rate hikes followed, including four consecutive 75 basis point increases. By early May 2023, the rate peaked at 5–5.25%, where it stayed for two months. In July, the Fed raised the rate again by 25 basis points, from 5.25% to 5.5%. This aggressive tightening earned the label ‘historic’ from analysts.
2. The inflationary shock is over.
Until the beginning of 2023, developed countries were grappling with record inflation, attributed to pandemic-induced demand stimulus, supply shocks, and disruptions in the supply chain. By June 2022, the U.S. reported a 9.1% consumer inflation peak, while in October, the U.K. and the EU inflation peaked at 11.1% and 10.6%, respectively. Thanks to the efforts of central banks worldwide, inflations began to show signs of retreat towards the end of 2022. In June 2023, the U.S. economy reported a 3% inflation rate, with other countries also showing a decline in consumer inflation.
3. The euro falls below parity with the U.S. dollar.
Inflation fever and decisive actions by regulators caused investors to avoid risk and actively invest in safe-haven assets. Due to the central banks of Europe and the U.K. acting with a time lag compared to the U.S. Fed, there was a gap in rates and yields of government bonds. As a result, the dollar index against world currencies reached a 20-year high in October 2022, leading to the euro's exchange rate against the U.S. dollar falling to 0.9880.
4. Malaysia proposes the establishment of the Asian Monetary Fund.
The global trend of de-dollarisation is gaining momentum, especially in Malaysia, where the establishment of the Asian Monetary Fund (AMF) was proposed as an alternative to IMF. Malaysia's Prime Minister Anwar Ibrahim reintroduced the concept of the AMF in March 2023, citing the economic strength of countries like China and Japan. His proposal was supported by China and some Southeast Asian countries, reflecting a growing desire among BRICS countries to move away from the dollar-centric financial system.
5. Brazil and China establish the yuan-based clearing house for direct settlement.
On 29 March 2023, China and Brazil announced the establishment of a clearing house to facilitate direct settlement between the two countries without converting their currencies into dollars. This move aimed at making transactions cheaper and faster, ultimately bolstering trade and investment expansion. China has been Brazil's key partner for the past 13 years, with its trade turnover amounting to $150 billion in 2022. Additionally, Brazil has been a major recipient of Chinese investments, mainly in the development of oil fields.
6. China's economy restarts after zero-Covid policy.
Following its emergence from the COVID-19 pandemic, China experienced a remarkable economic recovery. By mid-2023, the country's economic activity, domestic tourism, and international travel nearly fully rebounded, leading to numerous agreements to facilitate international business and trade. To address uneven growth in the first five months of 2023, the Chinese government implemented measures to support businesses and boost consumption while maintaining tight monetary and fiscal policies.
Amidst an ongoing recession in G7 and EU countries, China's reopening and deepening relations with the Middle East and BRICS nations have significant implications for de-dollarisation and deglobalisation. According to the IMF's April 2023 Growth Outlook Survey, the Asian region will account for about 70% of global growth, while the G7 and EU economies will shrink, resulting in a 7% decline in global GDP. At the same time, the IMF raised its growth forecast for Asia-Pacific economies to 4.6% in 2023.
‘These deglobalisation processes are causing a decline in the popularity of the dollar, leading to an increase in the dollar money supply and its consequent depreciation. However, these shifts are global in nature and might extend over the long term,’ said Kar Yong And, the OctaFX financial market analyst.
7. Cryptocurrencies face an uncertain future.
The cryptocurrency market experienced a turbulent 2022, with sharp fluctuations in the value of Bitcoin causing panic among investors. Reports of cryptocurrency exchanges facing insolvency added to the overall uncertainty. On 11 November 2022, FTX, one of the world's largest cryptocurrency exchanges, filed for bankruptcy protection in the United States, triggering negative sentiment across the crypto world. Subsequently, on 22 November 2022, Bitcoin plummeted to its lowest level in two years at $15,480. In the same month, BlockFi, a digital asset lending company, also filed for bankruptcy in the U.S., citing the collapse of FTX and instability in the cryptocurrency markets. Despite this turbulence, the cryptocurrency market has shown resilience, rebounding by 86.5% from the previous year's lows, with Bitcoin currently valued at $29,868.
8. The rise of AI.
AI has quickly become a buzzword in the tech world after OpenAI's ChatGPT chatbot was released in November 2022. Investors are eager to be part of the success witnessed by tech giants such as Microsoft, Alphabet, Nvidia, and smaller but up-and-coming companies that have announced their AI projects. This heightened interest has triggered a sharp surge in tech stocks, with Nvidia, for example, recording a 217% increase since the beginning of 2023. Nvidia's fourth-quarter financial results exceeded expectations. Consequently, more than 20 analysts reported confidence in continued growth, and Goldman Sachs raised the price target for the Nvidia stock.
9. The banking crisis in the United States and Europe.
During the economic downturn caused by COVID-19, the U.S. Federal Reserve and the European Central Bank gradually raised interest rates. Consequently, national short-term bonds ceased to deliver expected returns and became unprofitable. Many banks were forced to sell them at a lower price to secure liquidity. Furthermore, the failures of Silicon Valley Bank and Signature Bank resulted in a massive outflow of deposits, causing multi-billion dollar losses for commercial banks and leading some to shut down their operations.
The situation reached a critical point in March 2023 when three American banks went bankrupt within five days, followed by one European bank. The bankruptcies of Silvergate Bank and Signature Bank came at the height of turbulence in the U.S. banking sector, while American Silicon Valley Bank and European Credit Suisse succumbed to the banking panic. However, the situation has stabilised for now, and there are no immediate signs of further escalation.
10. Oil in a downtrend after peaking in value.
Oil prices experienced significant fluctuations, peaking in June 2022 at $125 per barrel for Brent crude after a sharp spike in March of the same year. However, a year later, Brent's value plummeted to $79 per barrel, marking a 36% decrease from its peak. Such fluctuations in oil prices are closely tied to the state of the global economy. As economic conditions worsen, the cost of oil tends to rise, making the oil and gas industry an attractive defence against inflation for investors. When the purchasing power of money weakens, the value of tangible assets such as real estate, commodities, and hydrocarbons increases. As soon as the economic situation improves, the value of oil decreases.
‘The increasing popularity of gas, driven by its economic advantages, and the introduction of non-U.S. dollar settlements for oil transactions between several countries are likely to further harm oil prices in the future, with a potential downtrend reaching the $50–55 range for Brent crude within the next 2–3 years,’ said Gero Azrul, a full-time trader from Malaysia with over fourteen years of experience.
11. Gold buying by central banks reaches the highest level in 55 years.
Against the backdrop of turmoil in the banking sector, ongoing geopolitical tensions, and a difficult economic situation, the role of gold as a safe-haven asset is coming to the fore. According to World Gold Council's quarterly outlook, central banks bought almost 400 tons of metal in the third quarter of 2022, which is the highest level in 55 years. In the first quarter of 2023, central banks bought 228 tons of gold—a 20-year high.
‘As an alternative to the declining U.S. dollar, gold's demand from central banks is set to be further supported by investment demand from gold ETFs. Additionally, consumer demand for gold is expected to rise alongside the global recovery in consumer activity, particularly in Asia. The combination of these factors is likely to push the value of gold against the U.S. dollar to above $2,500 in 2023–2024,’ Ambrose Ebuka, a financial expert and host of educational webinars from Nigeria, commented. ‘Technically speaking, gold is attempting to break out from its major resistance level of $2,070 and establish new highs.’
12. Green technology pushes the prices of lithium, cobalt, and nickel up.
According to the International Energy Agency (IEA), the market for metals and minerals needed to produce electric cars, wind turbines, solar panels, and other green technologies has doubled over the past five years. Lithium demand tripled, cobalt rose by 70%, and nickel increased by 40%. The market size of metals and minerals required for green technology in 2022 amounted to $320 billion, doubling in value from 2017.
‘According to the global carbon budget aiming to keep global warming below 1.5 °C, net worldwide anthropogenic greenhouse gas emissions must be reduced to zero by 2050 or within the range of 2045-2055. Lithium, cobalt, nickel, and some other metals, often referred to as critical minerals, play a vital role in facilitating the energy transition and reducing CO2 emissions, making them crucial in the fight against global warming. Therefore, the upward trend in their prices is expected to continue,’ said Ambrose Ebuka.
As financial markets continue to experience turbulence, opportunities arise for those well-informed. The world economy is facing a significant test of deglobalisation, with the reset of business cycles leading to a shift in the value of oil and the U.S. dollar downwards. At the same time, gold is predicted to rise over the next two years. Investors must stay vigilant in navigating these changes to capitalise on opportunities they provide in the financial markets.
About OctaFX
OctaFX is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services already utilised by clients from 180 countries with more than 42 million trading accounts. Free educational webinars, articles, and analytical tools they provide help clients reach their investment goals.
The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.
OctaFX has also won more than 60 awards since its foundation, including the ‘Best Online Broker Global 2022’ award from World Business Outlook and the ‘Best Global Broker Asia 2022’ award from International Business Magazine.
