Unveiling the Market Dynamics: How AI, US Monetary Policy, and Forex Steered the Markets in 2023

OCTAVIAN PĂTRAȘCU
3 min readApr 30, 2024

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AI with an electric circuit technology vector design
Source: https://www.dreamstime.com/ai-electric-circuit-technology-vector-design-digital-future-concept-ai-electric-circuit-free-stock-image-image-free-112978356

As an entrepreneur and investor, myself, I was concerned that market performance in 2023 might be gloomier than in 2022. The word around Wall Street was that recession was on the table. Recession is not a term that investors and business owners like myself would like to hear.

With that in mind, there were noteworthy shifts in the markets and here I have highlighted a few of the sectors that had a significant impact on the global markets.

The US Fed remains steadfast

After the pandemic in 2020, lockdowns and restrictions were lifted and countries opened their borders for travel. In addition, businesses reverted to normal working conditions. However, the sudden changes globally caused inflation to rise sharply. The US Federal Reserve had to step in and tighten its monetary policy.

During 2022 the FOMC (Federal Open Market Committee) which is responsible for determining where the rate would be set, increased short-term interest eleven times. The US interest rates reached a high of 5.50% in July 2023.

Inflation reached a peak of 9.1% in 2022, but due to the numerous rate hikes, inflation decreased to 3.2% in 2023. The Federal Reserve’s target for inflation is 2%, although it was not achieved in 2023, Jerome Powell, Chairman of the US Federal Reserve decided to halt rising interest rates after July.

A chart depicting a bullish trend in the market.
Source: https://www.dreamstime.com/stock-market-index-investment-analyzing-free-stock-image-image-free-30717276

The AI revolution

Fintech is a key part of my business; therefore, I keep a close eye on technology stocks. Technology stocks took a nose dive in 2022, the sector declined 33%. My main concern was keeping my businesses profitable.

Fortunately, at the start of 2023, a new era unfolded with the advent of generative AI. AI caused a paradigm shift in the way we create and interact with technology. It caused a positive reaction in the markets and assured me that the markets are back to recovery.

Nvidia, a major player in the chip-making industry, benefited the most from the AI revolution. Their stock price increased a massive 239% in 2023.

Furthermore, Nvidia owns about 80% of the GPU market share. GPU or graphic processing units perform technical calculations at high speed which is beneficial in developing AI. The boom in AI development meant higher demand for Nvidia’s graphic processing units, and therefore, boosted the company’s value. Nvidia reached a net income of $17.5 billion in 2023, six times higher than in 2022.

Forex market main influencers

I reviewed the Forex market’s performance in 2023 and identified a few factors that stood out for me. Among these influencers were the European energy crises, the US midterm elections, and China’s Covid zero policy.

Most of us have been directly or indirectly affected by one or more of these factors in our day-to-day lives.

If we review the energy crisis in Europe, it is directly impacted by the war in Ukraine. Russia supplies Europe with gas and the supply has declined by 80%, mainly as a result of the ongoing war. The harsh weather conditions in the northern hemisphere are another factor that increased gas demand. Higher demand means higher prices which results in higher inflation. This chain of events subsequently impacted the Euro which hit a two-decade low in August 2023.

China experienced an increase in COVID-19 infections and the government implemented rigorous measures like lockdowns, quarantine, and testing. The lockdowns restricted exports which negatively impacted the supply chain from China to other global markets, further boosting inflation.

We’ve discussed the tight monetary policy that the US maintained, however, the midterm elections caused quite a stir in the Forex sector. Since the financial markets do not have an affinity for uncertainty, the unpredictability of US politics did not ease the concerns among traders.

A mixed bag of ups and downs in 2023, but the overall sentiment among investors and economists was that the markets recovered well despite the global challenges and uncertainty.

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