US Dollar (Part III)
US Dollar was considered one of the premier safe haven currencies in the world prior to September 11 because the risk of severe United States instability was considered to be very low. United States was known to have one of the safest and the most developed capital markets in the world.
This allowed United States to attract investments from all over the world at a discounted rate of return. Almost 76% of the global currency reserves were in US Dollar. Post 9/11, foreign investors and the Central Banks are not so sure about the US Dollar due to the increased US uncertainty like the present recession and decreasing interest rates.
Many developing and emerging countries peg their local currencies to US Dollar. Important countries that peg their currencies to US Dollar are China and Hong Kong. China is a very active participant of the global currency markets because its maximum float per day is controlled within a narrow band based on the previous days closing US Dollar rates. Any fluctuations beyond this band will invite intervention by the Chinese Central Bank that may include buying and selling US Dollars.
EU represents a market as large as US with its own single currency Euro. The emergence of Euro is also threatening the US Dollar as the worlds premier reserve currency. Euro has provided an alternative to the US Dollar. With the passage of time, it is feared that Euro will emerge as a strong challenger to the dominance of US Dollar. Recently a group of countries like China, France and others have called for the introduction of a new global reserve currency by the IMF that should replace the US Dollar. If this happens in the next few years, it may have far reaching implications of the US Dollar and the US economy.
Due to the present financial crisis in the United States, many analysts fear a major devaluation of US Dollars. Many central banks have already begun to diversify their foreign exchange reserves by reducing their US Dollar holdings and increasing their holdings in Euro and the gold. Interest rate differentials can be a very strong indicator of potential currency movements because the US markets are the largest markets in the world and the investors all over the world are very sensitive to the yields offered by the US assets. The interest rate differentials between the US Treasuries and foreign bonds are followed by the professional forex traders with keen interest.
It is important that you follow the US Dollar index because when the market analysts are talking of general US Dollar weakness, they are referring to this index. The USDX is a futures contract traded on the New York Board of Trade (NYBOT). Market participants closely watch the US Dollar Index as an indicator of overall US Dollar strength or weakness.
The US Stock and Bond markets also impact US Dollar. Cross border merger and acquisitions involve big forex transactions and are also very important for forex traders to watch.
The following economic indicators are important for the US Dollar: Employment, Nonfarm payrolls, International Trade, Employment Cost Index, Industrial Production, Consumer Confidence, Retail Sales, Consumer Price Index, Produced Price Index, GDP, TIC Data etc.
This allowed United States to attract investments from all over the world at a discounted rate of return. Almost 76% of the global currency reserves were in US Dollar. Post 9/11, foreign investors and the Central Banks are not so sure about the US Dollar due to the increased US uncertainty like the present recession and decreasing interest rates.
Many developing and emerging countries peg their local currencies to US Dollar. Important countries that peg their currencies to US Dollar are China and Hong Kong. China is a very active participant of the global currency markets because its maximum float per day is controlled within a narrow band based on the previous days closing US Dollar rates. Any fluctuations beyond this band will invite intervention by the Chinese Central Bank that may include buying and selling US Dollars.
EU represents a market as large as US with its own single currency Euro. The emergence of Euro is also threatening the US Dollar as the worlds premier reserve currency. Euro has provided an alternative to the US Dollar. With the passage of time, it is feared that Euro will emerge as a strong challenger to the dominance of US Dollar. Recently a group of countries like China, France and others have called for the introduction of a new global reserve currency by the IMF that should replace the US Dollar. If this happens in the next few years, it may have far reaching implications of the US Dollar and the US economy.
Due to the present financial crisis in the United States, many analysts fear a major devaluation of US Dollars. Many central banks have already begun to diversify their foreign exchange reserves by reducing their US Dollar holdings and increasing their holdings in Euro and the gold. Interest rate differentials can be a very strong indicator of potential currency movements because the US markets are the largest markets in the world and the investors all over the world are very sensitive to the yields offered by the US assets. The interest rate differentials between the US Treasuries and foreign bonds are followed by the professional forex traders with keen interest.
It is important that you follow the US Dollar index because when the market analysts are talking of general US Dollar weakness, they are referring to this index. The USDX is a futures contract traded on the New York Board of Trade (NYBOT). Market participants closely watch the US Dollar Index as an indicator of overall US Dollar strength or weakness.
The US Stock and Bond markets also impact US Dollar. Cross border merger and acquisitions involve big forex transactions and are also very important for forex traders to watch.
The following economic indicators are important for the US Dollar: Employment, Nonfarm payrolls, International Trade, Employment Cost Index, Industrial Production, Consumer Confidence, Retail Sales, Consumer Price Index, Produced Price Index, GDP, TIC Data etc.
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano's Forex Signals free. Discover a revolutionary Forex Robot Trading System!