DESCRIPTION: Widely perceived as one of the most prominent currencies in the world, the U.S. Dollar (USD) plays a crucial role in the economies of many countries across the globe.
USD and Forex Trading: An Overview
WESTCHESTER COUNTY, NY — August 24, 2021 — Forex trading, defined as the buying and selling of currencies on the global market with the aim of capitalizing on foreign currency exchange rate differences, is fast becoming one of the most prominent investment opportunities across the globe. Due to the fact that it involves and is heavily influenced by international trade, politics and economic conditions, the USD plays a major role. Firstly, the United States is reportedly the largest importer of goods and second to China when it comes to exports. This ultimately means that it contributes to the majority, if not all, of the world’s economies. According to reports, the USD is involved in approximately 75% – 85% of all trading activity, which is further proof of the role of the US economy in the world.
Moreover, many countries trading on the global market who seek financial assistance often receive it in the internationally recognized reserve currency, which is the U.D. Dollar. The establishment of institutions such as the International Monetary Fund (IMF) and the World Bank has further positioned the USD a key role player in international markets; this is because the repayment of said funds will also have to be in the same currency. This invariably involves the USD in global markets and affects trading activity.
Most Popular Currency Couples
Currency couples are categorized as either majors, minors or crosses. Majors consist of the USD; minors do not consist of the USD but does consist of one of the other major currencies, such as the Euro (EUR); while crosses are defined as non-USD currencies. According to reports, some of the most popular currency couples across the globe are the EUR/USD, USD/JPY (Japanese Yen), GBP (British Pound Sterling) /USD, EUR/GBP, and AUD (Australian Dollar/USD.
As alluded to above, the USD and EUR are always mentioned in conversations with respect to important currencies and currency couples for several reasons. Firstly, the stability and predictability of a currency couple are generally determined by the economic activity and strength of the countries. When it comes to the USD/EUR as an important currency couple, which is said to be the most traded as well, this is the case because these two economies are major contributors to global trade and economic activity. In recent months, the USD has been strengthening against the EUR, for several reasons, one of which is the faster growth and recovery that the American economy has been experiencing relative to Europe’s. These currencies are generally perceived as having the most worldwide volume of trade and economic power or activity, which also makes them the most volatile.
As at 19 August 2021, the EUR is down against the USD. Days prior, the couple is said to have dropped during the European trading hours because of unimpressive data that was released. The EU’s gross domestic product (GDP) reportedly came in at merely 2% in the second quarter of the year. Moreover, the couple experienced a further drop after the release of US retail sales which came in lower than projected. Looking ahead, the pair is reportedly at risk of a further decline in the near future. This will be the case should the less than desirable market trends continue.