The US Dollar is not losing ground against the Euro or the Japanese Yen in terms of its performance in the global markets. That is a strong message to currency investors to consider the possibility of winning at least part of their bets. This is because US Dollars is not the only currencies that have the potential to increase in value as well.
In fact, the global economic growth outlook for the next two years has not been very positive in many ways. Most economists and financial experts alike expect the US Dollar to continue to strengthen against other major currencies like the Euro and the Japanese Yen. These currencies are down in many respects this year.
There is also a greater risk of a deflationary shock in Europe as well as Japan as the economies struggle with too much debt in too short a time. There is even less certainty about the situation in the US which has been held up by financial turmoil and still recovering from the effects of the great recession. Financial advisors and Forex traders alike will need to use a little more discretion when they are making their long term currency strategies.
Because the US Dollar is seen as an anchor in the foreign currency market, that anchor will be stronger than that of some other currencies. But other factors will also play into the success or failure of most of the long term strategies being considered. For example, the weakness of the Euro against the Dollar in the past year has been a welcome surprise. So it may turn out to be a deciding factor for some currency investors.
The strength of the Euro against the US Dollar is good news for some currencies, but not for others. Some Forex investors might have thought that a strong Euro would result in a stronger USD, but that is not necessarily so. After all, the Euro is somewhat weaker now as well.
The US Dollar and the Euro are not the only currencies that are vulnerable to deflation. Japan is already having problems with deflation, as well as some European countries. Even so, the Euro has proved to be a more reliable currency in the past.
If the Euro and the US Dollar to continue to strengthen against each other, then Forex investors will do well. However, if the Euro continues to weaken and the US Dollar gains strength against the Euro, then you should seriously think about the reasons why. The Euro might still eventually gain strength, but it will do so on the back of a stronger USD.
The Euro’s strength versus the US Dollar can be explained in several ways. One reason is that the European Central Bank is printing its own money at a very high rate. As a result, the Euro has more value because there is a surplus of money instead of a deficit of money.
The Euro’s strength against the US Dollar also reflects the fact that there is a European Central Bank owned and controlled bank in the world today. This is a reason to appreciate that currency assets do not always have to be one nation’s government’s bonds. In this case, the Euro is probably a better investment as it provides a greater benefit from the European Central Bank.
The same Euro-dollar exchange rate benefits currency investors in the European Central Bank’s own currency. That is another reason to think about the EUR and the USD. Investors have seen the benefits of a weakened Euro and think that it will strengthen as a result.
The Euro’s weakness against the US Dollar is a particularly good thing for the Euro as a long term currency investment. But because of the strength of the Euro against the USD, the Euro is a bit weaker now as well. This may have resulted in a stronger USD going forward.
To be sure, the Euro and the USD are two equally powerful currencies and both might benefit in the future. However, one is stronger than the other and may hold an advantage over the other for a long time.