The USD still ranks among the major forces that drive financial markets all over the world. When the USD gains in value, it rarely affects currency pairs alone; it may have implications for commodities, stock market indices, capital movement, and risk appetite.
As a trader, knowledge about the cyclical nature of the USD’s strength may help discover trading opportunities in several CFD markets at once. JustMarkets, a multi-asset CFD trading platform, allows traders to have access to various instruments in a single trading System.
What drives dollar strength
For example, there are several factors that play a role in determining the value of the dollar.
First, the stance of the Federal Reserve plays an important role. An expectation of tighter US monetary policy and higher interest rates is likely to increase the demand for the US dollar.
Secondly, safe-haven flows of money play an important role. Investors tend to invest in dollars when there are high tensions in geopolitics or when risk appetite falls.
Thirdly, growth differentials matter. The perception of the US economy being healthier than that of other countries can lead to the expectation of a relatively more hawkish stance of the Fed against an easier stance of other central banks.
Why traders watch DXY
DXY is the name of the US Dollar Index. Even though this index is usually not used to generate any signals for trading directly, it may give some hints about how the USD behaves overall.
If the DXY is growing, then there is usually increased demand for the dollar. It can make pairs like EUR/USD and GBP/USD fall in value, USD/JPY rise, and have an impact on commodity markets. The decline of the index can potentially have the opposite effect. Impact on major currency pairs
The strength of the dollar impacts major FX pairs. The EUR/USD and GBP/USD tend to fall…
Source link
Read Full Article by TechTrends at techtrends.africa
Source link
