HedgeFundLIVE.com — The US Dollar value can be moved by many different factors. I’ve been seeing a lot of headlines lately about the Dollar’s impact and thought it a good time to go over some issues. If I make a mistake in any of the following, feel free to comment on the article and let me know.
1. The strength of the US economy will cause the USD to increase in value. The recovery is well underway in this country, and when the jobs and housing markets fully join in the growth cycles, the USD will grind up with them.
2. The artificially low pegged Chinese Yuan will supposedly be gradually unpegged forcing it to rise in value. This will cause the USD to lower in value for many reasons. The near-term affect will be to lower the value of the USD, because currencies work inversely to each other. The long-term effect is American exports will become more attractive due to the lower Dollar, thus creating higher demand abroad. This may decrease the trade deficit (that is a positive) which is a component of GDP. When GDP increases because on positive trade balance, the USD’s value will also move higher.
3. QE2 is ending in June. The Dollar may be undervalued due to the Fed’s easing strategy. When the Fed buys bonds, the result is more cash is in circulation, which tends to dilute its value. After QE2 ends, assuming there is no QE3, the USD should rise in value.
4. The Dollar Index, DXY, which is a basket of major currencies against the USD is near long-term support levels. Technical analysts would say the USD is primed for a jump higher if it respects the support level. A good ETF to look act for this is UUP.
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