2020 has seen turbulent times for the financial markets, with the US dollar being one of the currencies that has seen a wide range of movement. What does the future hold for the dollar and how can traders look to potentially earn from the expected changes?
The Outlook
Numerous factors influence the price of the US dollar and have to be taken into account with any prediction of its future price. For example, in times of economic turmoil, it is widely seen as being a safe haven that investors will turn to.
This explains why the dollar rose strongly against the British pound, the Euro, and other major currencies in the first half of 2020. More recently, the view that this year’s recession might not be as deep as expected has caused the dollar to drop back.
The US Federal Reserve has revealed that their new inflation strategy aims for an averaged-out 2% rate. That could boost the stock market but may lead to downward pressure on the dollar in the coming months.
How Can Traders Look to Gain from the Current Uncertainty?
Of course, traders will look for different opportunities to profit from any kind of economic climate. As we have seen, there is a high degree of uncertainty over the subject of the dollar’s comeback. This shows the particularly dynamic nature of forex markets, and why trading in currency pairs can be opportune.
Many traders, new and experienced, will get a feel for this environment with a demo trading account. Nadex™ is one platform that can be used anywhere, on desktop or mobile, and allows those adventuring into the market to test out multiple strategies. With so many factors to take into account, any prediction over the future value of this particular currency will be subject to change.
So, if you think that the dollar will rise against the Euro you could see what trading in the EUR/USD market looks like. If you think that the dollar will weaken, the currency pair that may be used to try and gain from this is USD/EUR.
What Will the Effect of Change in the Dollar Be?
If the dollar rises or falls, it typically has a knock-on effect on other segments of the market. For example, the price of gold is heavily linked to the USD and a strong dollar will tend to keep the price of gold low. Since gold is also a safe haven when the global economy is struggling people tend to turn to the precious metal as well as the dollar.
According to Bloomberg, global commodity currencies and the British pound are among the areas that could suffer the biggest falls if the US dollar continues to strengthen on the market. Having said that, the pound has recovered from the low point that it reached in March 2020 against the USD and has recently been strengthening.
There are some signs that the dollar may continue to strengthen, while other indicators suggest that it may go the other way. As always, the volatility of the forex market makes it incredibly difficult to predict and attractive to investors.
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