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Trading the US Dollar

The US dollar or ‘greenback’ remains the de facto reserve currency of the world, despite the trials and tribulations of the American economy in 2007-2009. It has enjoyed this status since the 1940s, and while there are proposals being aired in some quarters about an alternative global reserve currency, the US dollar continues to be the top dog amongst currency traders.

If you are trading currencies (or ‘forex’) online, you are more than likely to be trading the US dollar at some point. Almost all currencies quoted to traders by online forex brokers will include a price to trade that currency against the dollar. Many currencies are assessed by analysts according to their relative strength to the dollar and indeed many traders will take a view on a currency’s relative strength against the dollar.

Economic figures released by US government agencies are closely watched by traders in most currency pairs. Apart from the interest rates set by the US Federal Reserve, the USA’s central bank, other key economic statistics affecting the US dollar include Non-Farm Payrolls (NFP), the US trade balance, and various measures of consumer confidence, like the US Consumer Confidence Index, calculated by the Conference Board.

Eighty-five per cent of currency transactions around the world involve trades with the US dollar. The USA remains the world’s largest economy, its number one importer and number three exporter, and despite the fact that China has now overtaken Japan as the second largest economy, the margin between first and second place is huge.

Central banks around the world continue to favour the US dollar as their principal foreign currency holding, and many other currencies are pegged to the dollar.

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