The year 2023 was eventful for investors and traders across different financial markets. The foreign exchange market specifically experienced some surprising moves that saw currency pairs break decades-old price levels.
Exploring Key Events From 2023
The forex market opened for the 2023 trading year with a continuation of various trends across major currency pairs from 2022. Still, notable events only began impacting the industry in the early months of the new year. The energy and gas situation across Europe expectedly shaped exchange rates, with a few surprises, such as hikes in exchange rates and cryptocurrency regulatory changes.
As a trader, trading with the best forex broker 2024 gives you the platform to trade forex and other markets confidently in 2024 by leveraging the information from this article. Here are the top seven takes from the forex market in 2023 that can help your trading decisions in 2024.
A Tumultuous Year For Cryptocurrencies
The crypto market experienced a tumultuous year, from regulatory pressures to plunging prices. Several events, such as the collapse of TerraUSD and the bankruptcy of FTC and other major crypto exchanges, rippled through the crypto market. The SEC’s rejection of several Bitcoin ETFs also contributed to a choppy market. In November, Binance was fined $4.3 billion, falling short of anti-money laundering laws. The company also had its CEO resign as a result of the fallout.
The cryptocurrency market may have experienced heavy losses in 2023, but Bitcoin (BTC) is up 160% this year, having rallied from around $16,000 in January 2023 to over $43,000 as of December 02. The crypto Fear and Greed Index is heavily tilted in the Greed as investors position for a potential rally.
Geopolitical Events Impacted the Forex Market
While the UK and Eurozone countries achieved economic growth following Brexit and post-pandemic conditions, the war between Russia and Ukraine challenged the energy rates across Europe, with the effects reaching America. With unrest in the Middle East historically upsetting oil prices, the Israel-Gaza war is of great concern and may well impact the forex market in 2024.
The Greenback Leads the Charge
The USD went choppy against currencies like the GBP in 2023. Although the Greenback responded to the Fed’s monetary policies, it hit a five-month low on Friday, December 22nd, 2023. Yet, the USD maintains some pressure on the EUR and the Yen, among other things. As the US inflation pressures cool off, the USD is poised to finish 2023 on a weak note. In 2024, traders can expect more actions from the Fed to roll out more policies to strengthen the USD, potentially impacting the Treasury yields and the economy.
Although the USD gained in the weeks following the war, risk aversion concerns may see investors opt for lower-risk securities than others. A potential rise in oil prices from countries that supply most of Europe’s oil may also increase concerns about inflation.
Continued Impact of Technology on Trading
2023 saw a rise in adopting technologies such as AI-powered trading robots and analytical tools, increased popularity and patronage of proprietary firms, and more trades using third-party technologies for trading. There’s also a significant rise in using cryptocurrencies to process payouts rather than traditional banking systems, indicating where market demand may be headed.
Advanced trading tools may impact how traders trade the forex market differently. For instance, over 20% of the global spot forex trades are executed with EAs with more execution speed than humans. That figure may increase the number of traders with lightning-fast entries at specific prices.
Central Banks Monetary Policies Driving Forex
Central banks worldwide played a dominant role in driving the forex market in 2023. They rolled out policies to combat inflation, revive economic growth, and attract investors. As always, interest rate policies were the primary tool influencing exchange rates.
Many central banks increased interest rates to new highs; the Bank of England has its interest rate at a 15-year high with no immediate signs of reduction. The US Federal Reserve is included; America’s apex bank holds the interest rate at a 22-year high to stem inflation and make the USD attractive to investors.
The Rise of BRICS
The international trading bloc led by Brazil, Russia, India, China, and South Africa has existed for over a decade. Still, their activities increased in 2023 with more international partnerships and trade agreements. The organization also welcomed six new members at its fifteenth summit in August. BRICS is expected to adopt a common currency and shift the dominance of global trade and finance in their direction.
The ECB and the Euro
Although Europe had its share of economic struggles, the European Central Bank was slow to raise interest rates. With the Russian-Ukraine war weighing heavily on the Eurozone economy, investors expected a hike in the monetary policy. Still, it wasn’t until February 08, 2023, that the deposit facility interest rate was increased to 2.50 from the 2.0 rate set in December 2022. Five more increments have seen the rates reach 4.0.
The ECB’s hesitance to increase the rates contributed to the struggles that the EUR experienced in the global forex market, falling against the USD and GBP several times. But the fiber has also maintained some strength, pushing back against other currencies in the market.
What To Learn for 2024
Next year, the economies that comprise 60% of the global GDP will hold elections. Investors can expect significant policy changes and far-reaching effects at national and international levels; the key lessons to learn include analyzing newly elected officials and their policies and adopting proper capital management strategies to navigate the forex market. Whatever factors impact the demand and supply of forex pairs, trades can always find profitable setups by trading on reliable brokers and monitoring news events.
