Home At last the US dollar is showing some strength

At last the US dollar is showing some strength

The US dollar seems to have turned the corner after its recent weakness as the FX market has finally realised that US economic fundamentals and purchasing power have not been in sync with the markets.

Today’s rally   against the Euro and Sterling have demonstrated that there could be further strength in the greenback on fundamental grounds and geo-political uncertainty. With growth prospects in the US much better than in Europe and the UK combined with goods much cheaper in the US  than in Europe and the UK the US dollar has much stronger fundamentals to justify an extended period of bullishness.

The geo-political risk in the Middle East and the threat of war against Syria should also continue to support the US dollar and should be a major beneficiary of any action in the region. The US dollar is considered “the safe-haven currency” of the world and with continued unrest in the region, the US dollar should gain further ground as investors buy US dollars.

Against Sterling, the US dollar is still only   a couple of cents away from its multi-month high. Last week (on 21st  August) the US dollar was trading above 1.57 USD against the US dollar today it is back to under 1.55 USD. Sterling had strengthened from 1.48 USD in the first week of July when Mark Carney had taken over as the governor of the Bank of England  to over 1.57 USD  in less than 8 weeks.   Similarly, the Euro had strengthened from 1.28 to 1.34 in the same amount of time even though European economic fundamentals are still very weak with unemployment more than 50% in some countries amongst the under 30 year olds and the economies of many countries still in economic contraction and growth prospects still dire.

With the likelihood of war in the Middle East rising day by day as well as the US economy ahead of the growth curve in Europe, the US dollar should continue to strengthen in coming days and weeks. Add to the fact that weakness in emerging country currencies such as the Brazilian Real, Indian Rupee and Russian Rouble should benefit the US currency, there should be prolonged strength in the greenback.  It would not be surprising if the Euro goes back below 1.30 in coming weeks and 1.50 against Sterling in the near future.

Forex Analysis: EUR/USD Retreats from 1.3400 Resistance

Ronnie Chopra

Ronnie Chopra

Ronnie has over 15 years’ experience working with financial products and started his financial career at CMC Markets in 1999 and in 2001 he joined Merrill Lynch Investment Managers (now BlackRock - the world's largest asset manager) and worked there for over four years as a RFP analyst. Since 2005, he has worked in a number of brokerage firms as a CFD and FX sales trader and market strategist. A seasoned commentator, Ronnie has appeared many times on global business channels (BBC, Bloomberg, CNBC, CNN and SKY) to discuss topics concerning the financial markets. He has written numerous business-related articles and regularly lectures.