FX Converter: What You Need to Know about the USD

FX Converter and What You Need to Know about the US Dollar

A lot of people use an FX converter to see what the foreign exchange rate is.  While this is an easy method of keeping track when you are trading the US dollar there is other information that you need to know.  The forex market should not be traded on lightly, or by the unprepared.  Doing your homework is essential to being successful on the market.

US Dollar FX Converter

The US dollar is one of the most commonly traded currencies on the forex market.  It is also the dominate currency for monetary reserves and is the default currency of most transactions.  This is not surprising when you consider that the US economy is the largest in the world.  However, the US dollar has not always held this place of honour as prior to the Second World War this position was held by the British Pound.  The significance of the US dollar came in the American dominated post-war economy.

The Federal Reserve is the central bank of the USA and balances economic growth and inflation.  However, the size of the US economy and the impact is has on other countries means that the Federal Reserve also impacts other countries.  This is often seen in interest rates as the Federal Reserve has a ripple effect on the world interest rates.

The US Dollar Economy

While the US economy is the largest in the world this position is under threat since the popping of the housing-bubble.  The US economy has been plagued with increasing national debt and budget deficits.  The economy of this giant is based primarily on the service industry.  While the US has the largest economy it is placed third in export values behind Germany and China.  The manufacturing sector of the economy has moved out of the US in an attempt to take advantage of lower costs and wages.  The economy is becoming more dependent on their financial services, technology and media outlets to keep them in a competitive position.

The US Dollar Drivers

When you are trading with the US dollar you have to consider what drives the forex rates.  The demand on the US dollar does influence the price based on the demand and supply trading model.  The more demand there is for a currency the higher the foreign exchange value will be.  However, this is not the only factor which affects the value.  Economic data has a very heavy impact on the value of the currency.  Data that has a positive view of the economy will impact the value positively.

Global events also have an impact on the value of this currency.  History shows us that the US dollar tends to strengthen when there is global chaos.  However, when the global economy is doing well investors and traders put more weight into the economic data regarding the country.

The Unique Factors

There are certain unique factors that you have to consider when looking at the dollar.  The most important is the currencies position as the world reserve currency.  This position allows the currency to have a low interest rate without great risks of inflation.  However, as other currencies become more prominent the risk of inflation will rise so you need to keep up to date on this information.

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