US Dollar Prediction in 2022: Can the USD Continues to Rise?

10/18/2022By: C, Fiona

What’s the influence of a weak US Dollar (USD)?

Let’s take a look at the possible factors that could cause the US dollar to drop below its current forecast value:

  • Because of its size and global influence, the United States economy sets the standard for international trade and commodity pricing. This is why the strength or weakness of the US dollar can affect economies and currencies all over the world.
  • When the USD weakens, countries that import from the US benefit because US exports become more competitively priced.
  • While this may be true, a weak dollar also means less spending by American consumers. A drop in imports into the US could be the result, which is bad news for businesses overseas that sell their products in the US.

 

What’s the influence of a strong US Dollar (USD)?

  • A stronger US dollar can have the same effect on other economies and currencies as a weaker one.
  • As the value of the US Dollar rises, imports from the United States will become more expensive for consumers in other countries. The potential drop in exports is bad news for the American export industry.
  • Meanwhile, a rise in imports is possible due to a stronger US Dollar because it allows Americans to buy more abroad. Good news for nations whose exports are targeted at the United States market.

 

What significantly affects the value of the US dollar?

The state of the American economy, government, and international trade significantly affects the value of the dollar.

1. The US Economy

Increases in the value of the US dollar are common when economic growth and unemployment rates in the United States improve. In contrast, the value of the US Dollar typically decreases when the US economy slows. The USD will likely remain strong in 2022 as the US economic recovery proceeds.

If inflation or wages are rising faster than GDP in the United States, the dollar tends to appreciate. The rise in inflation towards 2022’s end helped boost the value of the US dollar, and similar gains are anticipated at the beginning of 2022 before inflation begins to moderate.

 

2. Politics

The political climate in the United States can have a significant impact on the value of the dollar. When the US economy was still struggling to recover from the pandemic in 2022, the Biden administration passed a series of spending bills.

When policies are enacted that benefit the US economy, the value of the USD tends to rise. The value of the dollar might increase if more bills were passed to boost the economy. However, if the Biden administration wants to increase taxes, the value of the US dollar could decline.

3. Imports and Exports

When imports and exports are both on the upswing and contributing to robust economic growth, the currency in question tends to do well.

Despite being the world’s largest consumer, the United States ranks second in terms of exports (second to China). The United States is one of the world’s most productive economies despite the fact that it imports more than it exports.

 

Bank predictions for the USD in 2022

 

Since May 2022, when the US economic recovery began to gather steam and the Federal Reserve began to scale back its support for the economy, the dollar has been on an overall upward trend.

Analysts at ING predict that the value of the US dollar may rise further in the coming year. Monetary policy made by central banks is a major factor in currency exchange rates. In 2022, bank analysts predict, the Fed will raise interest rates more than any other central bank.

The slowing of global growth and the Federal Reserve’s beginning to gradually raise interest rates are both reasons why HSBC’s analysts believe the USD will rise in 2022. They also imply that the USD could decline if global growth picked up speed.

 

GBP/USD performance in 2022

  • The UK economy is expected to continue its recovery from the pandemic and lead to an increase in interest rates from the Bank of England in 2022, according to the majority of major banks.
  • If the UK’s economy recovers at the same rate as the US’s, the two countries’ currencies should remain in a narrow range of 1.33 to 1.35.
  • The United Kingdom and the European Union will likely be working into next year to find solutions to the problems of trade and the Northern Ireland border that have arisen as a result of Brexit.

EUR/USD performance in 2022

  • The Federal Reserve, the US central bank, is widely expected to raise interest rates ahead of the European Central Bank as the US economic recovery and jobs market recovery advances ahead of Europe.
  • Since a currency tends to rise when interest rates are raised, most major banks forecast that the EUR/USD will remain low throughout 2022.
  • The Euro to Dollar exchange rate may hit 1.10 by next December, according to most experts.