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Bannockburn Global Forex December 29, 2022 View Online Economic Calendar • January 1: Croatia becomes the 20th member of the eurozone and 27th member of the Schengen area of passport-free travel area • January 1: Lula de Silva is sworn in as Brazil’s President • January 13-14: Czech presidential election • January 22: Lunar New Year • February 12: German state election, Berlin • March: China, National People’s Congress • April 2: Finland parliamentary election • April 8: Bank of Japan Governor Kuroda’s term ends • April 10-16: World Bank/International Monetary Fund meeting, Washington, D.C. • May 6: Coronation of King Charles III and Queen Camilla • May 14: German state election, Bremen • May 19-21: G7 Summit, Hiroshima, Japan • May 28: Spain local elections • June 8: Possible Greek parliament election • June 18: Turkey presidential and parliament elections • July 11-12: NATO Summit, Lithuania • September 9-10 : G20 Summit, New Delhi, India • October: possible Switzerland parliament election • October: possible German state election, Hesse • October 8: Luxembourg parliament election • October 8: German state election, Bavaria • October 13-15: World Bank/International Monetary Fund meeting, Marrakesh, Morocco • November 11: Poland parliament election • December 10: Spain parliament election January 2023 Two significant shifts took place in the past few weeks. First, China abandoned its zero-Covid policy and faces a surge of Covid cases and fatalities. The purposefully opaque regime in Beijing makes it particularly difficult to assess developments, but the economic disruption hits an economy that was already weak. Second, the Bank of Japan widened the band of its 10-year yield to 0.50% on either size side of zero. This effectively doubled the yield-curve control cap to 0.50%. The yen strengthened sharply, and the conventional wisdom sees it as a step toward exiting zero-interest rate policy (overnight target -0.10%) by the end of Q1 23. We are less convinced of a follow-up move early 2023. The Federal Reserve, like several other major central banks, slowed the pace of its tightening, but the peak is still a few months away. Slower inflation may enable it to downshift to 25 bp moves in the first half of 2023. The European Central Bank has pre-committed to another 50 bp move when it meets again in February, and the market anticipates another 50 bp after that (March). We expect the shifting rate differentials to weigh on the US dollar, broadly speaking. It is not only short-term trend-followers and momentum traders that are making the adjustment to a less strong dollar environment, but structural long dollar positions are also likely to be pared further. Click here for further currency analysis Bannockburn's World Currency Index, a GDP-weighted basket of the currencies from the top 12 economies, edged higher in December (~0.8%). It was the first back-to-back monthly gain since the end of 2020. The BWCI recorded its low in early November, marginally slipping through the low recorded in late September. The December gain reflected the appreciation of the yuan (~1.6%), euro (~2.0%), and yen (~2.7%). The Russian rouble was the worst performer in the index, losing almost 16%. The Korean won was the best-performing emerging market currency in the BWCI. It rose by 4%. The Canadian dollar was the weakest of the G10 currencies, depreciating by about 1.4%. From its lows, the Bannockburn World Currency Index appreciated by 3.70%. It is the biggest advance since the peak in June 2021. BWCI seems to confirm our sense that a significant extreme in exchange rates is behind us. In line with our expectations for the US dollar to unwind more of its post-Covid gains, we look for the index to advance around 5% in 2023, which would be its best year since 2017. This email was sent by: Bannockburn Global Forex 255 East Fifth Street, Floor 8 Cincinnati, Ohio, 45202, United States