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Is The USD Headed For Danger Before The End Of 2015?
The United States dollar has had an interesting time in the market recently. After strong gains in the beginning of the year, the USD seems to have stalled; and growth in the currency seems to be uncertain. Today, we’ll take a look at the underlying factors that are affecting growth in the USD and discuss dangers that could be just down the road.
What Causes Movements In The Value Of The United States Dollar?
As with any other currency, the health of the United States economy and financial markets directly correlates with the value of the United States Dollar. Therefore, when the health of the United States economy or financial markets is uncertain; we tend to see declines in the value of the dollar. On the other hand, when the United States economy is booming and markets are performing well; the dollar rises.
A perfect example of this phenomena would be to simply look at the price movement in the USD over the course of the last few months. If you open the USD chart, you’ll see that price movement has been incredibly unstable. Looking closer into the details, you will find that the major declines in the value of the USD happened at the same time that economic red flags were waved. For example, we saw a big decline in March as US jobs growth proved to be a reason for concern. Another decline came in late March as we waited on the next jobs report; however, when it came in and showed a recovery, the USD gained in value once again. Then, as major concerns started to build about the Federal Reserve increasing interest rates, the value of the currency fell yet again.
This Leads Us To The Next Major Issue The USD Is Likely To Face
As mentioned above, the health of the United States economy and financial markets plays a major role in the value of the United States Dollar; and both the economy and the markets are going to get a test of strength very soon. The story goes back to the financial crisis of 2008 and 2009. In an attempt to stimulate positive economic activity, the Federal Reserve decreased interest rates. Lower interest rates meant that less money was spent on loans and more was free to be spent and invested; ultimately building the US economy back to stand on its own two feet.
However, investors knew that when the US economy became healthy again, the low interest rates would need to be increased; and that time as far as the Federal Reserve is considered is just around the corner. There’s a big problem with this though. The US economy isn’t doing as well this year as it was last year; and growth in the stock market has slowed to a snails pace. Nonetheless, the Federal Reserve has maintained a relatively clear stance on the topic; if there’s any chance a rate hike can happen before the year 2015 comes to an end, it will happen.
With the fate of the United States economy already uncertain, and performance in the financial markets slowing down; investors are eagerly anticipating the FOMC meeting on June 17th for more clues as to when the Federal Reserve will start raising interest rates. Nonetheless, when this does happen, investors will be forced to step back and dial down risk in their portfolio; which will lead to a sell off and a bit of market turmoil. On the other hand, consumers that are still struggling will start to pay more of their money into interest on loans and have even less to spend. While I understand that interest rates have to go up; I’m also expecting the increased interest rates to have a dramatically negative affect on the value of the USD.
What Do You Think?
Where do you think the value of the USD is headed and why? Let us know your opinion in the comments below!
