Factors Affecting the US Dollar Exchange Rate
There are many reasons why the US dollar exchange rate can rise or fall, and you should know them if you are involved in any way with this currency, especially if you trade on Forex.
Fundamental Forex analysis is simply unthinkable without knowledge of these factors.
The US dollar is one of those currencies whose exchange rate is influenced by literally everything, from the direct impact of news from the stock markets to the publication of data on the state of the United States economy.
If you track the emergence of new news concerning the American currency in time, you can earn good money or simply protect your existing capital from shocks.
Upon closer inspection, the dollar no longer appears to be the stable currency that most economists imagine it to be.
Economic, financial and political reasons.
The US dollar, like any other global currency, is sensitive to domestic events, particularly the state of the US economy and banking system. Any changes in this area are reflected in the news, and it's through the news that you can learn about the dollar's future.
Particular attention should be paid to the publication of such data as:
1. Inflation rate – more often than not, it's not the rate itself that's reported in the news, but rather data on real estate, industrial, and consumer goods prices. An increase in the inflation rate causes the dollar to depreciate, while positive data causes the currency to strengthen.
2. Employment and unemployment – an increase in the unemployment rate always indicates a deterioration in the economic situation in the country, which entails a weakening of the national currency.
3. Trade balance – the more goods a country exports, the higher the exchange rate of its national currency, therefore, changes in the trade balance indicator, which indicates the ratio of imports to exports, always have a strong impact on the current price of the currency.
A positive balance causes the dollar exchange rate to rise, while a negative change almost always causes a downward trend on Forex.
4. The Federal Reserve's discount rate is the most important tool for managing the domestic money supply. A reduction in the discount rate indicates greater availability of credit resources and negatively impacts the exchange rate of the US dollar. An announcement of a rate increase has the opposite effect.
5. Emission of money supply - a running printing press always indicates the entry into circulation of money supply backed by nothing. The last time this happened was in September 2012 and caused the weakening of the dollar against the euro by almost 1000 points.
External factors.
In addition to internal factors, the dollar exchange rate is also subject to external influences.
1. The price of oil – its decline contributes to the strengthening of the US dollar, and a sharp increase in the price of oil can literally cause a collapse of the American currency.
Oil trading - http://time-forex.com/pary/neft-na-forex
2. Gold – here, there is also an inverse relationship between the price of gold and the trends on the Forex currency market for the US dollar: when gold rises in price, the dollar depreciates, and vice versa.
Gold trading - http://time-forex.com/pary/torgovly-zolotom
3. Euro – the strengthening of the euro has a negative impact on the US dollar exchange rate, with investors' funds migrating to the European currency, which causes an increase in the dollar supply on the Forex currency exchange, and therefore a decrease in the exchange rate.
4. External debts - America owes almost everyone, so reports of an increase in US external debt always have a negative impact on the exchange rate of this country's currency.
In addition, any statements by world leaders regarding the situation in the United States, criticism of the country's political course, and other statements can play a negative role.
