Why the US dollar's golden era could be over
Key points
- EUR/USD hit 1.1000 intraday Tuesday for the first time since August
- Treasury yields have reversed after historical highs, overnight interest rates may follow
- The impact on US dollar may depend primarily on relative strength
US dollar weakens off highs
The U.S. dollar has recently enjoyed a golden era of strength, reaching historically high levels against major currencies like the euro and yen. However, there are growing concerns among forex traders about whether this trend is coming to an end. The recent decline in U.S. interest rates has raised questions about the future of the dollar's strength.
Looking at the global interest reate landscape, the US Federal Reserve currently leads major central banks with a 5.25 - 5.50% target rate. If the Fed elects to lower rates, and it does so before other countries, USD could depreciate further due to shifts in demand.
However, there is also a bull case for the dollar, if interest rates lower globally and the US is not alone. If other countries lower their interest rates along with the US, there may not be a significant shift in forex markets. Either way, US dollar's future performance will depend on how strong other economies remain as US inflation continues to cool towards the 2% target rate.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
What is the overnight rate?
The Overnight Rate, or Federal Funds Rate, is the interest rate set by the Federal Reserve to target monetary policy. This rate is used by large banks each night as a cost to borrow into the next day.
Why do interest rates matter to forex traders?
Interest rates impact forex markets because they determine the cost to hold or borrow currencies overnight. The differential between interest rates can cause greater demand for a certain currency over the other.
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