We expect the market optics to focus on inflation and the actions of central banks in 2022. We expect the euro and British pound to outperform the US dollar despite several interest rate hikes in the US. Most CEE currencies should be supported by better sentiment and higher interest rates, Ebury analysts forecast.
In the first half of 2021, the COVID-19 pandemic continued to drive financial market movements. As we predicted, a key factor for most currencies was the speed at which vaccines were administered to nationals of individual countries. In the second half of the year, attention shifted largely from the pandemic back to more conventional topics, namely macroeconomics and monetary policy.
In recent months, the most important factor affecting the financial markets has been the sharp rise in inflation after the release of delayed demand. Its building was made possible by accommodative monetary and fiscal policies. In addition, higher inflation was catalyzed by the surge in energy prices and significant supply-side shortages.
We have been saying for some time that central banks have generally downplayed the structural nature of global inflationary pressures. Some of them have already come to the conclusion that the increased price growth will stay longer – even if the Fed removed the word “temporary” from its description of inflation in December. Others, including the European Central Bank, have yet to make such a strong turn.