Should US Investors Trust FX in 2022?

While the Omicron coronavirus variant has been considerably more mild and less impactful than some scientists initially warned, it has still had a noticeable impact on the global economy and markets.

Certainly, the US has seen its economic growth interrupted by the Omicron outbreak, although investors sought out some opportunities to profit in derivative markets such as forex.

But should US investors trust the forex market in 2022, and does this represent a viable investment vehicle in the current economic climate.

Omicron and the US Economy

According to Mark Zandi, who currently works as the chief economist for Moody’s Analytics, the US economy will continue to experience a short-term economic hit in the wake of the Omicron variant.

More specifically, he has predicted that the US economy will grow by around 2% in Q1 2022, down from an initial forecast of 5% published last year.

This represents a sharp and unexpected decline, although there’s slightly more positive news in that the economy is expected to rebound once again once the initial spike has peaked.

Still, this uncertainty is also undermining the US economy and stock market, with this volatility being further driven by confusion over the state of the labour market stateside. 

In fact, the US workforce grew by just 199,000 during a disappointing December, far lower than the forecast number of 422,000 non-farming job roles. Despite this, the unemployment rate fell during the same period, suggesting that any perceived economic growth was relatively insecure and driven primarily by part-time, temporary and low-paid opportunities through 2021.

Rising inflation is also posing a significant issue in the US, with this having increased in the wake of the quantitative easing measures rolled out to combat the coronavirus pandemic.

Inflation peaked at 6.2% towards the end of 2021 (considerably higher than wage growth), and while lawmakers hope to reduce this to 2% by the end of this year, it remains to see whether this can be achieved without causing further collateral damage to the economy.

How Should Americans Invest in 2022?

With Omicron having directly and indirectly impacted on the US economy and financial markets, it makes sense that investors should have become suspicious of buy-and-hold investments like stocks and bonds.

However, the same cannot be said for the forex market, which has seen its global trading volumes increase over the course of the last 18 months. 

The reasons for this is simple; as forex trading deals in derivative assets and currency pairings that are traded in pairs. This means that traders can speculate on price movements in both directions and profit without assuming ownership of the underlying financial instruments, creating flexibility and growth even in a depreciating market.

More specifically, investors can back or hedge the US dollar through a number of viable pairings, while accessing increased leverage that enables them to open and control positions that are considerably larger than their initial deposit. 

Remember, assets such as the USD/EUR also offer optimal liquidity in an uncertain market, while the USD/JPY pairing is also seen as a relative safe-haven that provides additional security in a challenging marketplace.