This year, not only the foreign exchange market has experienced a historic year, but the global stock market value has lost trillions of dollars, the bond market has been turbulent, currencies and commodities have plummeted, and multiple cryptocurrency empires have collapsed, all

For the foreign exchange market, 2022 can be described as magical.

Not only the foreign exchange market has experienced a historic year in the world this year, but the global stock market value has evaporated by trillions of dollars, the bond market has been turbulent, currencies and commodities have plummeted, and multiple cryptocurrency empires have collapsed, all of which are unforgettable to many investors.

However, if we look back carefully at this year, we will find that everything seems to be inseparable from the protagonist in the foreign exchange market - the US dollar.

Global markets are in turmoil as global inflation soars and the conflict between Russia and Ukraine breaks out. When the world's most influential central bank the Federal Reserve began to consider raising interest rates, the market direction suddenly changed, the financial market staged a double-kill drama of stocks and bonds, and the demand for safe havens heated up. The Federal Reserve's most aggressive rate hikes in decades have made the U.S. dollar one of the most sought-after assets for safe-haven funds, the entire foreign exchange market, and even all capital markets.

In the foreign exchange market, the appreciation of the US dollar has caused continued pressure on most other currencies, and even led Japan to take intervention measures to prevent excessive currency depreciation for the first time in 24 years. Under the strong US dollar and the expectation of economic recession, most major currencies have experienced an extremely depressed year.

The hawkish Federal Reserve kept the U.S. dollar high for most of the year. It wasn't until expectations emerged at the end of the year that the Federal Reserve would slow down the pace of interest rate hikes that the U.S. dollar showed signs of peaking. The depressed market is beginning to look forward to a completely opposite picture in the coming year, looking forward to the arrival of the spring of non-US currencies.

2022 Review

US dollars

In fact, due to the soaring inflation caused by ultra-loose policies in 2021, it has become the market consensus early on that the Federal Reserve will start raising interest rates in 2022. At the beginning of the year, many major Wall Street banks predicted that the U.S. dollar would continue its upward momentum in 2021 in the new year.

Just entering 2022, the United States announced a CPI data that "broke 7", setting a new high since June 1982. This data also strengthened expectations for tightening policies. However, at that time, as most markets expected that the Federal Reserve would not tighten policies excessively to protect the economy, the dollar's gains were relatively moderate. Some analysts warned in their 2022 forecast that the dollar's rise will moderate. "Historically, the dollar has strengthened six months before the first U.S. rate hike, but it's possible the bond market is trying to price in a Fed policy mistake," said Arjun Vij, portfolio manager at JPMorgan Asset Management.

But what surprised the market was that the Federal Reserve raised interest rates more violently than before. In March, the Federal Reserve officially launched its interest rate hike, and with inflation reaching new highs, it raised interest rates four times by 75 basis points, step by step starting the most radical interest rate hike cycle in 40 years.

Since the beginning of this year, the Federal Reserve has raised interest rates by a total of 425 basis points, federal funds interest rates have risen to the highest level in 15 years since 2007. In 2022, the U.S. dollar index, which tracks the trend of the U.S. dollar against a basket of currencies, saw its highest increase of 16% at one time, the largest increase since 1985, but then fell back, with a final increase of about 8%.

Although in this global interest rate hike cycle, the Bank of England was the first major central bank to start implementing tightening policies, followed closely by the Federal Reserve and other central banks. However, compared with the Fed's 425 basis points, the Bank of England has raised interest rates by only 325 basis points this year.

As the world’s most important central bank, the Federal Reserve’s aggressive tightening policy also affects the performance of all other assets. Judging from historical data, the tightening monetary policy implemented by the Federal Reserve in response to high inflation rates will most likely put pressure on the global financial market. This year's plunge in risk assets including U.S. stocks, cryptocurrencies, etc. has just fulfilled this historical law. Only commodities can still record gains.

This year, the S&P 500 index has entered a technical bear market for the first time since the outbreak in March 2020, and has failed to escape the downward trend despite repeated rebounds; the world's largest cryptocurrency, Bitcoin, has fallen by nearly 70%.

Although rising interest rates are not the only factor causing the plunge in risk assets, the plunge in these assets has increased the demand for safe-haven assets. In addition, radical interest rate hikes have led to rising expectations of a global economic recession, and many funds have poured into the U.S. dollar.

In addition, there is another factor that cannot be ignored this year, and that is the conflict between Russia and Ukraine. On February 24 this year, conflict broke out between Russia and Ukraine. When the war broke out, the gold market exploded and became the primary destination for safe-haven funds. However, as interest rates rise, real interest rates rise, and gold, as a non-interest-bearing asset, loses its appeal.

On the contrary, the conflict between Russia and Ukraine has further enhanced the appeal of the US dollar as a safe-haven currency. The energy crisis caused by the Russia-Ukraine conflict has plunged the economies of Europe and other regions into deep quagmire. It has also pushed domestic inflation to soar further, making it difficult for the Federal Reserve to stop raising interest rates. These factors have invisibly further pushed the dollar.

Kristen Macleod, co-head of global foreign exchange sales at Barclays, once pointed out: "The U.S. dollar index usually performs strongly in two extreme situations: one is risk aversion, and the other is The U.S. economy performs significantly better than countries such as Europe and Japan. Since the outbreak of the Russia-Ukraine conflict, the U.S. dollar index is benefiting from both."

However, as can be seen from the trend chart, since September, the U.S. dollar has peaked in stages, and once fell 9% from the high point during the year. The main reasons for the dollar's fall are that expectations of a U.S. economic recession have strengthened, U.S. inflation has begun to slow, and Federal Reserve officials have mentioned that they may slow down the pace of interest rate hikes. There are even expectations in the market that the Federal Reserve will start cutting interest rates next year.

Although at the last interest rate decision meeting in December, Powell refuted the view that the Fed will reverse its tightening monetary policy stance next year and said that raising interest rates is "still some way off", this did not shake the dollar out of its weakness.

What is even more surprising is that on December 20, the Bank of Japan adjusted its yield curve control plan. Market analysts regarded this adjustment as a "disguised interest rate hike" and expected that the central bank will soon cancel its negative interest rate policy. As a result, the U.S. dollar exchange rate plummeted against the Japanese yen that day, further suppressing the U.S. dollar index.

Under the influence of various factors, the dollar's rally seems to be coming to an end.

euro

As mentioned earlier, due to the outbreak of the Russia-Ukraine conflict, Europe, which is extremely dependent on Russian energy, suffered heavy losses.

The reason why the European Central Bank is slower than the Federal Reserve to raise interest rates is because European governments are burdened with heavy fiscal deficits due to the impact of the new coronavirus epidemic, and the energy crisis caused by the Russia-Ukraine conflict has weakened the region's economy. Raising interest rates easily can easily trigger another European debt crisis. In the middle of this year, the possible outbreak of debt crisis in Italy even became a hot topic for a time. As a result, for much of this year, the European Central Bank has kept interest rates negative to support the economy, and the euro has continued to lag behind the dollar.

However, the energy crisis caused oil and gas prices to rise sharply, and European inflation gradually went out of control. At the same time, the depreciation of the euro also exacerbated economic difficulties, and the euro-dollar exchange rate historically fell below parity. Under pressure, the European Central Bank started its interest rate hike cycle by 50 basis points. Since the beginning of this year, the European Central Bank has raised interest rates by a record 250 basis points.

But this did not stop the euro's decline. First of all, the starting point and extent of interest rate hikes by the European Central Bank are not as good as those of the Federal Reserve, and the interest rate differential between the two places continues to expand; secondly, the energy crisis is getting worse, and concerns about economic recession in Europe are rising. Record gas prices have kept European households in fear of supply shortages during the winter, and a cost-of-living crisis has continued to weaken the European economy.

However, the dollar's fall has brought the euro back above parity against the dollar. And, despite the slowdown in inflation, the European Central Bank reiterated its hawkish stance at its final meeting of the year and warned of continued sharp interest rate hikes in the future. Money markets are betting that the ECB deposit rate will rise to 3.5% by July next year, based on swaps tied to the date of the policy meeting. That implied peak has risen by 60 basis points since the European Central Bank decided to raise interest rates to 2% on December 15, and official borrowing costs will be at their highest level since 2001.

pounds

It is not only the euro that is approaching parity, but also the pound. Although the Bank of England was the first major central bank to start implementing tightening policies, the pound continued to depreciate against the US dollar due to the weak economy and the divergence of the pace of monetary policies between the United Kingdom and the United States.

Although the pound did not fall below parity like the euro, the pound's exchange rate against the US dollar fell by more than 9% during the year, making it weaker than the euro. This is partly due to the British government. The United Kingdom, which is also in Europe, is facing an energy crisis caused by the Russia-Ukraine conflict. In response to rising household bills, the British government has continuously introduced support policies.

Since Brexit, the British economy has been in "a mess." However, his predecessor Truss gained support with slogans such as "committed to solving the energy crisis" and "low taxes and high growth", and succeeded in succeeding Johnson as the British Prime Minister in September. However, it is not easy to solve the British economic problems. Truss radically launched a "mini-budget" that included a number of tax cuts, causing many in the market to believe that this policy will bring higher inflation and a more serious deficit.

The British market was thrown into chaos: British government bonds were sold off sharply, and the pound plummeted. The Bank of England also had to buy bonds at this time to contain the market crisis. Although Truss later gradually overturned the tax cut plan, this series of measures also made her the shortest-lived prime minister in 60 years.

Against the background of continued turmoil in the financial environment, the pound seems to have been reduced from its former foreign exchange "hegemon" to an emerging market currency, and the UK's long-standing credibility in the international market has also continued to lose.

MG Investment Management fund manager Eva Sun Wai said: "Since the Brexit referendum, we have regarded the pound as a 'hopeless' currency because the currency seems to be more affected by economic growth. If the world is entering a very dramatic period of policy tightening and UK growth is worse than other regions, it will have a serious impact on the pound."

The weak economy has also made the Bank of England more cautious about further raising interest rates, and the outlook for the pound in the coming year has become bleaker.

Japanese yen

However, if you want to talk about the misfortune, there should be no other currency that can compare with the Japanese yen.

The yen once fell below the 150 mark in October, hitting a new low since 1990. The Japanese yen has been depreciating this year at an alarming rate. It has fallen by more than 30% during the year and by 50% in the past two years.

As a developed country and a currency favored by traditional safe-haven funds, the trend of the Japanese yen this year is really shocking. The main factor leading to the depreciation of the yen lies in the policy differences between Japan and other central banks around the world. In many public speeches, Bank of Japan Governor Haruhiko Kuroda has repeatedly emphasized that the Bank of Japan must maintain a loose policy to support the economy. This is in sharp contrast to the global tightening wave, and the interest rate spread has widened.

Zhao Xuequing, a researcher at the Bank of China Research Institute, also talked about why the Bank of Japan insists on negative interest rates. There are three reasons: The Japanese economic outlook is hardly optimistic, there is uncertainty about whether the deflation Japan is looking forward to getting rid of will end, and the financial pressure is worrying.

These factors have caused the Bank of Japan to respond to various speculations and bets in the market throughout the year. For example, in response to the "widow trade" that often occurs in the Japanese government bond market, the Bank of Japan purchased government bonds on a large scale; the Japanese government intervened in the foreign exchange market for the first time in 24 years to prevent the yen from continuing to depreciate.

However, it seems that under pressure, the Bank of Japan adjusted its yield curve control policy at the end of December. Although the Bank of Japan said in its policy statement that the move was aimed at "improving market operations and promoting a smoother formation of the entire yield curve, while maintaining accommodative financial conditions." However, analysts including Goldman Sachs believe that this is a sign to people that the possibility of the bank abandoning the negative interest rate policy has increased, and the Bank of Japan may cancel negative interest rates as the next step. On the day when the news of

was announced, the market fluctuated sharply, the yen continued to rise, and global bonds were sold off. Since then, the Bank of Japan's policy has shifted, and the turning point for the yen seems to have become the general consensus of the market.

Other currencies

In this historic year, Japan was not the only one to intervene in the foreign exchange market. South Korea also took similar measures. Since South Korea is a processing and export-oriented economy, a stable local currency exchange rate is crucial to the country.The weakening of the Korean won has led to an increase in local food and freight inflation, pushing South Korea's consumer price index to its highest level in more than two decades.

The weakening of the Korean won is still caused by the Federal Reserve's most aggressive tightening policy since the early 1980s and the widening of the interest rate differential between the two countries. In addition, the slowdown in South Korea's exports and the decrease in foreign exchange reserves have intensified the market's pessimism about the Korean won.

But in November, the Korean won seemed to be "resurrected", with its exchange rate against the US dollar rising by more than 9%, becoming the best-performing currency in Asia that month and even in the fourth quarter. This is mainly because the U.S. dollar has fallen back as the pace of interest rate hikes by the Federal Reserve has slowed, and most economic institutions believe that the strength of the U.S. dollar will gradually weaken and other currencies are expected to rebound.

This year, the most important event is undoubtedly the conflict between Russia and Ukraine, so naturally the ruble has also become the focus of everyone. The outbreak of the Russia-Ukraine conflict caused the ruble to plummet instantly. However, in less than a month, the ruble's exchange rate against the U.S. dollar achieved a V-shaped reversal , successfully recovering all the losses since the Russia-Ukraine conflict.

Yu Yongding, a member of the Chinese Academy of Social Sciences and a former member of the Central Bank's Monetary Policy Committee, Yu Yongding pointed out that the underlying reasons for the ruble's "full resurgence" are substantial interest rate increases, capital controls and requirements for "unfriendly countries" to use rubles to purchase oil and natural gas. Under these winning strategies, the ruble was the strongest performing currency in the global foreign exchange market during the year. Since the beginning of this year, the ruble has risen by about 15% against the US dollar.

can realize appreciation under the siphon effect of the US dollar, and in fact, the Brazilian real. The core of the currency's appreciation lies in Brazil's insistence on implementing monetary tightening policies to curb inflation. Starting from March 17, 2021, Brazil's central bank implemented a new round of interest rate hike policies. After 12 consecutive interest rate hikes, it raised the country's benchmark interest rate to 13.75% on August 3 this year. During this period, the cumulative interest rate hike was 11.75 percentage points, which was the interest rate hike cycle with the largest cumulative increase since 1999.

Such a radical interest rate increase has also achieved obvious results. Brazil became the first developing country to see inflation peak. That shifts the interest rate debate from a rate hike to a possible rate cut next year. Brazilian financial market analysts believe that Brazil will continue to maintain the current benchmark interest rate at 13.75% until May next year, and by the end of next year, the benchmark interest rate will be lowered to 11.75%.

Looking forward to 2023

As the "protagonist" this year, the trend of the US dollar in 2023 still attracts the attention of the entire market. Because whether the U.S. dollar is strong or not affects not only the foreign exchange market, but also all financial markets such as U.S. stocks, there is a lot of discussion in the market about the prediction of the U.S. dollar's trend.

In fact, there were signs as early as November that Wall Street's view of the dollar may be changing. After the fall in the consumer price index in October pushed the U.S. dollar index down, data compiled by the U.S. Commodity Futures Trading Commission showed that in the futures market, speculative traders turned to net short positions on the U.S. dollar in November for the first time in 16 months.

Therefore, the theory of the dollar peaking began to surface. Analysts believe the Federal Reserve will begin cutting interest rates next year as inflation peaks and under pressure from a recession. Since July, the U.S. CPI has continued to slow down. At the same time, the Fed's preferred inflation indicator core PCE price index also continued to fall in November. It has become a consensus expectation that U.S. inflation will continue to decline as economic growth slows. Although Federal Reserve Chairman Powell has more clearly stated that there may not be an interest rate cut in 2023, according to the latest MLIV Pulse survey, about 48% of respondents said they expect the Federal Reserve to cut interest rates within 6-12 months after the last rate increase, which means that the Federal Reserve may cut interest rates as early as late next year.

Wang Qing, chief macro analyst at Oriental Jincheng, said: "Under the general trend of the Federal Reserve slowing down the pace of interest rate hikes, this round of the U.S. dollar index's upward process has basically peaked."

Former bulls including JP Morgan Asset Management and Morgan Stanley said that the era of dollar strength is ending, as cooling inflation prompts the market to reduce bets on further tightening of the Federal Reserve's policy.Kerry Craig, a strategist at J.P. Morgan Asset Management in Melbourne, said: "The market now has a better grasp of the Fed's direction and the dollar is no longer the one-way buy we have seen this year.

Morgan Stanley analysts led by Andrew Sheets predict that the dollar will peak in the fourth quarter and then fall through 2023, supporting emerging market assets. HSBC Holdings PLC strategist Paul Mackel said the dollar could "fail" next year.

Deutsche Bank believes that the dollar's record highs can be attributed to: Europe's energy crisis and the Federal Reserve's determination to curb high inflation. The existence of so many risks has persuaded global investors to seek refuge in the traditional safe haven of the dollar. But the bank's global head of foreign exchange research George. Saravelos said risks reached a clear peak in November, which in turn set the stage for a sharp turn in the dollar. The huge risk premium was before the dollar now looks far less high, while speculative positions have also turned neutral.

Kit Juckes, head of foreign exchange strategy at Societe Generale , said the dollar’s second-biggest rally since February 1985 is effectively over. “No matter how we sugarcoat the world, the Fed is slowly moving toward the end of its rate-raising cycle,” Juckes said. “The rate hikes will get smaller and smaller, and eventually they will stop raising rates, and that will be the end of the story. "

However, opponents of the dollar peak theory still believe that the dollar is expected to continue to be strong next year due to Powell's hawkish stance. Agnes, European strategist at Barings Investment Institute Belaisch said the Fed remains focused on ensuring inflation is under control, meaning interest rates may have to remain high for a while before the Fed starts cutting rates, supporting dollar assets. "The Fed's work is not done yet, and it still makes sense to be long in the U.S. dollar," Belaisch said.

Although U.S. inflation has fallen back from its high point, it is still some distance away from the Federal Reserve’s 2% target. The Federal Reserve, which is committed to fighting inflation, may therefore continue to maintain tightening policies. Moreover, the labor market remains hot, with the unemployment rate still at historically low levels before the outbreak. The latest final GDP growth rate for the third quarter announced in the United States also reached 3.2%, getting rid of worries about recession in the first half of the year. This has made investors increasingly worried that the Federal Reserve may maintain higher interest rates for a longer period of time.

Scott, chief fixed income strategist at BlackRock Thiel believes that U.S. inflation will only slow to 3.50% by the end of 2023 due to continued labor shortages, rising wages and falling inventories. In comparison, the one-year CPI swap level is 2.38% and the breakeven rate on the 10-year U.S. Treasury bond is 2.14%.

BlackRock expects the Federal Reserve to raise interest rates to 5% in the first half of 2023, when long-term inflation will stabilize at around 3%. Thiel believes that long-term structural changes will keep inflation rising. He said this meant the Fed had no reason "not to take a hawkish stance" at the moment. Christopher Rupkey, chief analyst at

FWDBONDS in New York, said: "The U.S. economy is not as dying as the market thinks. Without a slowdown in the economy, upward pressure on prices is likely to persist, requiring the Federal Reserve to raise interest rates further in 2023. "

Goldman Sachs even gave a more optimistic forecast, believing that the Federal Reserve will not cut interest rates in 2023 and the U.S. economy can avoid recession. The bank's chief economist Jan Hatzius said a recession may be avoided because financial conditions and monetary policy tightening will constrain the labor market and suppress GDP growth, but not enough to trigger a recession, which will in turn prevent the Fed from lowering interest rates during the year because the absence of a recession will reduce the pressure for stimulus. "I think the barriers to a rate cut by the Fed will be relatively high in a non-recession environment where inflation remains above target." Looking ahead to 2023, even if interest rates are raised, it will be 75 basis points, similar to the Fed's forecast, and I think the drag from financial conditions will be smaller. "

Zhou Hao, chief economist of Guotai Junan International, said that if the "recession" expectations of the U.S. economy fail, the U.S. dollar may still "return as king" and put pressure on global currencies again. "As the overlord of the global currency, we cannot underestimate the resilience of the U.S. dollar."Although 'recession' is currently the main line of market trading, the current mainstream view is that the degree of recession in the US economy is 'mild'. In other words, there is still a certain probability that the U.S. economy will perform better than expected, "Guotai Junan International said.

On the other hand, as the main factors pushing up the dollar, the energy crisis and the global economic recession are expected to continue to support the performance of the dollar. The Russia-Ukraine conflict has not yet ended, and many regions including Europe have still not been able to get rid of the energy crisis, making the global economy worse under the wave of austerity.

International Monetary Fund (IMF) President Christa Lina Georgieva once stated at the 2022 Global Annual Meeting of the International Financial Forum (IFF) that the world economy is slowing down. The IMF predicts that the global economic growth rate in 2023 will be 2.7%, but there is a 25% probability that the actual growth rate will be lower than 2%.

Georgieva said that in 2023, at least one-third of the world's countries are expected to fall into economic recession. The situation of in the Asia-Pacific region is relatively good, but it does face many difficulties. challenges of favorable factors.

Georgieva explained that as many countries will continue to raise interest rates to combat inflation, fiscal policy will continue to tighten. High interest rates will cause yields to rise and currencies to depreciate throughout Asia. The conflict between Russia and Ukraine has seriously impacted the global energy and food markets, directly affecting European economic growth and weakening Europe's demand for Asian imports. A December survey of 66 foreign exchange strategists by

showed that in the next year or so, the U.S. dollar exchange rate will remain at current levels as many expect tightening by global central banks to hurt economic growth and once again boost the dollar's safe-haven appeal.

However, the more common view is that the US dollar will not remain strong throughout 2023, and the US dollar's momentum will become weaker as time goes by.

Mitsubishi UFJ recently issued a view that the U.S. dollar may appreciate in early 2023, but it will not last long. The agency said the dollar could trade higher in 2020 if data shows a strong U.S. labor market. The first quarter of 2020 was strong again, but this won't last long. Inflation is likely to ease in the coming months, but labor market conditions may keep the Fed's tightening policy longer than markets expect. This may become one of the focuses of market attention in the first quarter of next year. We believe this could lead to a resurgence of risk aversion, which could lead to another strengthening of the U.S. dollar. However, the dollar is likely to start to fall in the second quarter as a weakening labor market eases concerns about wage inflation and bolsters the case for a rate cut by the Federal Reserve in the fourth quarter.

is the opposite What is surprising is that most other non-US currencies will move in the opposite direction to the US dollar.

First of all, in the European region, CICC believes that in 2023, as the recessionary pressure faced by the Eurozone gradually emerges, especially the negative economic disturbance caused by energy supply problems at the beginning of 2023, it is possible to further deepen the market's concerns about the economic recession in the Eurozone. In this context, the European Central Bank may also end the interest rate hike cycle earlier. It is expected that the overall rhythm of the euro will follow other non-US currencies, falling first and then rising. Specifically, in the first half of 2023, Europe The signs of recession in the European economy may gradually become more obvious, and the European Central Bank may therefore exit this round of interest rate hikes ahead of the market's current expectations, causing the euro to start a correction against the US dollar. As the downward trend of the U.S. dollar officially begins in the second half of the year, the euro is expected to rebound against the U.S. dollar at the end of the year.

Erste Group Bank pointed out that the differences in monetary policies between the United States and Europe will moderately boost the euro. The bank said the dollar has weakened sharply since November on signs that the U.S. interest rate hike cycle is coming to an end. Therefore, the market's previous is highly valued and has lost its imagination. For the United States and the Eurozone, the interest rate hike cycle is not over yet. This means there is uncertainty about the final magnitude of future interest rate moves. The U.S. interest rate outlook is relatively easy to estimate, while uncertainty in the euro area is high. We expect that the Federal Reserve will raise interest rates by a further 50 basis points in the first few months of next year, while the European Central Bank will raise interest rates by a cumulative 100 basis points by May, which means that the interest rate spread will narrow slightly. The movement of a currency pair will be determined by corresponding speculation and may therefore be unstable.But ultimately, we expect only modest strengthening in the euro, which should be supported by stronger speculation about U.S. interest rate cuts in the second half of 2023.

Strategists at Royal Bank of Canada and Bank of New York Mellon believe that the Bank of England is currently more cautious about further raising interest rates, while the European Central Bank has strengthened its rhetoric that more action is needed to curb inflation. The euro-pound exchange rate is expected to continue to rise in the next year. Strategists say this is a new key thematic trade based on monetary policy divergence. After major central banks around the world raised interest rates sharply this year, traders are watching which central bank will make the first change.

MUFG foreign exchange strategist Lee Hardman said that the continued interest rate hikes by the Federal Reserve and the European Central Bank also increase the possibility of a hard landing in the global economy, which will have a negative impact on riskier assets such as the pound. "I'd probably be more bullish on the euro against other high-beta currencies, including sterling," Hardman said.

In Asia, the Japanese yen and the Korean won are favored by most analysts. Canadian Imperial Bank of Commerce believes that the yen will strengthen against the Australian dollar and pound after the Bank of Japan adjusts its policy. Canadian Imperial Bank of Commerce said the yen will rise against the Australian dollar and pound as changes in the Bank of Japan's policy in December will help correct the yen's weakness. Patrick Bennett, a strategist at the bank, said that weak British economic data and the need for the Bank of England to tighten monetary policy are a bad combination for the pound. In addition, rising global interest rates next year will put pressure on global economic activity, which is a risk for the high-beta Australian dollar. The U.S. core inflation rate remains too high, which will prompt the Federal Reserve to continue raising interest rates in 2023. However, having said that, the market is forming a consensus that the Fed's terminal interest rate will be close to 5%.

Société Générale expects the South Korean won to continue to outperform other Asian peers. Sonal Desai, chief investment officer of Franklin Templeton's fixed income division, said now is a good time to buy currencies that are "under extreme pressure" such as the Japanese yen and South Korean won.

Choi Kyungjin, head of fixed income and currencies at Deutsche Bank in Seoul, said the won could fall as low as 1,380 won to the dollar again in the first quarter of next year if market weakness at the end of the year intensifies volatility. Choi said that if the won fell to the 1,350 level, it would be a "very good level" to buy the won. He expects the won to rebound to 1,100 won per dollar next year, a level last seen in mid-2021. In addition, if South Korea is included in the FTSE World Government Bond Index, the Korean won may also appreciate further. South Korea's Ministry of Finance predicts that the move will be announced as early as March 2023 and will attract as much as 90 trillion won ($68.6 billion) of foreign investment into South Korea.

Goldman Sachs analysts, including Danny Suwanapruti, believe that the U.S. dollar's strength against Asian currencies may have peaked, and said that in the next three to six months, when the Fed's interest rate path becomes clearer, the continued strength of the U.S. dollar will weaken. Goldman Sachs said in a research report that the bank is bullish on the Korean won, Singapore dollar and Indonesian rupiah, and bearish on the rupiah. It expects the U.S. dollar exchange rate to peak due to the gradual clarity of the Federal Reserve's final interest rate.

Goldman Sachs said it is very optimistic about changes in the exchange rates of the Korean won and Singapore dollar. In the high-yield market for Asian currency exchange rates, future changes in the Indonesian rupiah exchange rate will be "extremely constructive" due to an improvement in the external position of the Indonesian currency and a record low in overseas capital holdings. In addition, Goldman Sachs also expects negative currency exchange rate changes in Malaysia, India and the Philippines.