Top 5 currencies at a glance: what drove the five most important currencies in 2022?

Top currencies in 2022 - performance of the five most important currencies
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What was driving the top currencies in 2022 so far?

Currency exchange rate fluctuations can heavily impact a business’ profitability, above all in smaller companies. Especially in today’s turbulent times, it is therefore important to keep an overview of the currency markets. To make it easier for you, we have summarized how the five most important currencies in the world have performed in the first half of 2022 against their peers:

  1. USD: best performer in the first half of this year
  2. EUR: continued to lose ground
  3. GBP: impacted by fears of recession of the UK economy
  4. JPY: weakness is easing deflationary pressure
  5. CNY: relatively strong against other major currencies

USD – US-Dollar

The USD is still the world’s most traded, most important currency. Relative to his contenders, the US-Dollar was also the best performer in the first half of this year. The USD gained across the board and performed incredibly well.
The USD-Index is comparing the USD against a basket of currencies and the chart below clearly demonstrates that the most important fiat currency is performing well, especially in times where we have a lot of uncertainty. Safe haven flows and a clear market perception for rising interest rates supported the Dollar rally so far.

Below you can see the performance of the USD-Index in 2022:
Top currencies: USD Index Performance 2022
Source: TradingView

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EUR – Euro

The Euro continued to lose ground and was, compared to the USD, one of the worst performing currencies. The war in Ukraine and a central bank reluctant to proactively raise interest rates are only two arguments why the first half year heavily weighed on the Euro.
If we compare market rates, the top currency could only perform reasonably against the British Pound and the Japanese Yen. The Yen was traditionally a safe haven currency, but it looks like investors prefer to hold USD and CHF in the current uncertain times.

The chart below shows the development of the EUR/CHF exchange rate:
Top currencies: EUR/CHF Performance 2022
Source: TradingView

GBP – British Pound Sterling

The Bank of England was among the first central banks to raise interest rates in order to fight inflationary pressure. Nonetheless, the Pound did not really benefit from it – too big are the fears that the UK economy is facing a recession in the months ahead. The performance of the Pound against the Euro and the CNY was somehow okay, but the USD’s strength was overwhelming and did not help the Pound, despite the fact that the Bank of England is raising rates along with the Federal Reserve.

The following chart shows a barely changed Pound against the Euro:
Top currencies: EUR/GBP Performance 2022
Source: TradingView

JPY – Japanese Yen

Although the Yen still belongs to the most important currencies, the country continues to lose its shine. An overaged population, a lack of innovation, an astronomic debt burden and ongoing tensions with China are responsible that the JPY is no longer everyone’s darling when it comes to safe haven flows. On the other hand, the weakness of the currency is easing deflationary pressure and supporting exports, so the Bank of Japan is probably not unhappy with the current state, where the JPY trades very weak against all other top currencies.

The below chart shows the development of the USD/JPY market rate in 2022:
Top currencies: USD/JPY Performance 2022
Source: TradingView

CNY – Chinese Yuan/Renminbi

The Chinese growth engine stutters a little, but in a world where supply chain issues, Covid-19 and a potential conflict with Taiwan are dominant factors, people tend to forget how the currency of the second largest economy is performing. In fact, the Renminbi is doing pretty good and trades relatively strong against a basket of other major currencies – and this could well last for quite some time. The biggest Damocles sword is probably a conflict with Taiwan, which could rapidly devalue the CNY. All the voices that accused China to artificially weaken their currency disappeared for now, but the speculations about an upcoming currency war are getting louder.

The following chart shows the CNY constantly gaining value against the Euro:
Top currencies: EUR/CNY Performance 2022
Source: TradingView

Conclusion: Is a currency war around the corner?

Certainly, the value of a currency is impacting its country’s economy and because of the ongoing globalization, it is also heavily influencing competitiveness and inflation in the respective countries or economic areas. Higher interest rates do not necessarily mean that a currency will rally (see GBP). Because currencies and their value are so important for an economy, more and more people think that a currency war is around the corner or already happening.

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Gerhard Scharinger
Gerhard Scharinger is the Head Markets of amnis. He is an expert in Foreign Exchange, Treasury Management, Economics and Hedging. Besides various published articles and foreign exchange news he is also an international speaker at different events. Follow him and amnis on LinkedIn, Twitter and Facebook to keep up with the latest industry news and insights.
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