Market Drivers for USD, United States Dollar. The US dollar holds significant importance as it originates from the world’s leading economy, serving as the global reserve currency.
This means it’s widely accepted world-wide for trade, making its demand tightly linked to the ebb and flow of global commerce.
When global trade diminishes, demand for the dollar typically rises, and vice versa.
Moreover, the dollar is the currency in which most commodities are priced, so its fluctuations can greatly influence commodity prices.
Almost 40% of global debt is denominated in dollars, and over 61% of all foreign bank reserves are held in US dollars, underscoring its central role in the world’s financial system.
In times of economic uncertainty, the US dollar is often seen as the ultimate safe haven, attributed to the United States’ stable government and robust economy.
59% of the worlds foreign exchange reserves are in US dollars.
The US dollar is involved in over 88% of international forex transactions.
The daily trading volume in the forex market exceeds $6 trillion, with the US dollar being major part of it.
Most global commodities are priced in US dollars.
About 40% of the world’s debt is issued in US dollars.
Over 61% of all foreign bank reserves are held in US dollars
US exports by country
Canada: 18% of total US exports. Vehicles, machinery, electrical equipment, plastics, agricultural products
Mexico: Around 16% of total US exports. Machinery, electrical equipment, vehicles, agricultural products, petroleum products.
China: About 8% of total US exports. Soybeans, aircraft parts, vehicles, electrical machinery, agricultural products.
Japan: Roughly 4% of total US exports. Aircraft parts, agricultural products, pharmaceuticals, machinery, electrical equipment.
United Kingdom: 4% of total US exports. Pharmaceuticals, machinery, precious metals, aircraft parts, chemicals
Eurozone Debt Crisis (2010-2012)
The USD strengthened as a safe haven currency during the Eurozone debt crisis. Investors, worried about the stability of the euro and potential defaults within the Eurozone, moved their assets into USD as a safer investment.
COVID-19 Pandemic Onset(Early 2020)
The outbreak of the COVID-19 pandemic saw a significant flight to safety, with the USD appreciating rapidly against a basked of currencies. The uncertainty and fear of a global recession drove investors towards the safety of the dollar, reinforcing its safe-haven status
Post 2008 Financial Crisis Recovery
After the 2008 financial crisis, the global economy began to recover, and the US, economy’s relative strength led to an appreciation of the USD. As global investors sought profitable opportunities in a stabilizing US market, demand for the dollar increased.
Mid-2010s Economic growth
During the mid 2010s, the US experienced robust economic growth compared to other major economies. This period saw the USD strengthening as the US Federal REserve Hinted at and then began raising interest rates making dollar-denominated assets more attractive.
2014-2015 Oil Price crash
When oil prices plummeted from over $100 per barrel in 2014 to below $40 by the end of 2015, the USD strengthened significantly. Lower oil prices contributed to lower inflation expectations worldwide, making the USD more attractive as it retained its purchasing power. Additionally, as commodities became cheaper, countries importing these goods saw their purchasing power increase, bolstering the USD’s value relative to other currencies.
Understanding the characteristics of currencies is vital for forex traders because it directly influences trading strategies, risk management, and profitability.
Each currency carries unique traits based on its country’s economic conditions, monetary policy, and role in the global market, which can affect its volatility, liquidity, and reaction to global events.