We have seen the dollar climb to new highs for 2016. This has lined traders pockets with signatures Forex trades surrounding The British Pound GBP/USD ,The Euro EUR/USD and the Dollar Yen USD/JPY. For the close of this week we have seen the dollar index reduce steam.
Why is the Dollar So Strong Right now?
The dollar is strong for three main reasons. The Federal Reserve ended expansive monetary policy, this is when a central bank uses it’s tools to stimulate the economy. Money Supply increases alongside lower interest rates.
The Fed raised interest rates in December 2015 that strengthened the dollar’s value. On the other side of the globe we saw the European Central Bank (ECB) Lower the euro’s value. (Political instability in the European union also Weakened the euro. The dollar automatically strengthens when the euro weakens. That’s because the euro makes up 57.6% of the value of the USDX.
The US Dollar Index (USDX, DXY) is an index or measure of the value of the United states dollar relative to a basket of foreign currencies.
As the end of the Year draws to a close next month, all eyes focus on December 14th federal funds rate decision.