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Rising US Dollar and its Future Outlook

 

banner_derivativesPerformance of US Dollar in 2014

The year 2014 proved to be quite interesting for US dollar. US Dollar rose against all the major currencies and it happened first time in the current century. US dollar rose against Euro, Pound, Yen, South Korean Won, Brazilian Real and 11 more global currencies. There are some reasons behind  the rising US dollar value. The apparent reason is the strong US economy.  Norway currency Krone was the worst performing currency against US dollar in 2014.

Current standing of USD in 2015

According to the New York Board of Trade, the US Dollar Index was at 96.28 points on Friday, September 4. It has fallen a few points from its last closing value.

Currently, the US Dollar is enjoying a great position in the world economy. When the economy of any country starts to grow faster, investors start demanding the currency of that country more and that is why the demand of dollar among investors is strong.

What does the USD future say?

The economy of US will continue to remain strong throughout the year. The question of concern now is that will the US dollar continue to rise, remain unchanged or will it fall? The US Federal Reserve is planning to revise its interest rate by September 17. Currently, the interest is low but it is anticipated that after this meeting, the authorities will work on increasing the interest rate.

It is expected that a medium-term corrective decline might come in USD.The Fed Reserve is concerned about tightening the financial conditions. Currently, USD is 3% overvalued. This shows that investors will continue to buy USD.

The Bank of America Merril Lynch says “The recent increase in USD has left trade in a much better place than it was before.”

The value of Dollar is rallying because the US economy is outperforming the rest of the world. This is a different story from what it was in 2009 when the USD only strengthened because of the quality flows into the treasuries. Today, the US economy is in a better position to withstand any kind of currency shock.

The bottom line is USD will continue to do well throughout 2015. The HSBC has also forecasted that dollar will perform well in 2015.

“USD is merely at the early stages of its bull run. This has ensured that it was not just the strongest currency in 2014, but in 2015 too. Even though we have advocated the strength of USD, we still have revised our forecasts substantially for reflecting the supremacy of USD.”

Conclusion

The favorable seasonal pattern of USD suggests that the value of the dollar will rise more till the December 2015. Instead of collapsing in 2015, some of analysts say that we might see USD moving above all other basket of currencies in the US dollar index during 2016. It would be favorable for the investors to invest in USD more and more to make the most out of the overvalued currency.

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About Emaad Qureshi