Forex might be your hidden gateway to riches just like the untold stories on how the greatest investors made their fortunes. Forex traders might want to pay more attention to the long-term trends that will make a strong dollar nearly impossible. Analysts, economists, and stakeholders in the finances of the U.S. have different opinions about whether the dollar should be strong or weak. Interestingly, both sides of the divide will give you convincing arguments to support their thesis.
If you want to pitch your tents in support for or against a strong dollar, you can be certain that you’ll run out of time before you run out of opinion about whether the U.S. needs a strong dollar or not. However, instead of overloading yourself with mathematical models, an infinite set of variables, and tons of data, you can easily know where the U.S. dollar is headed by looking at the trends in the economic and business landscape.
This piece seeks to explore some obvious but overlooked reasons you won’t see strong dollar any time soon. An understanding of why the long-term trends do not support the thesis of a strong dollar would help you make informed decisions in your Forex activities.
1. Big Business is Against a Strong Dollar
Firstly, a strong dollar is bad for business that sells to foreign markets and these big businesses are spending a fortune to lobby for a weak dollar. Many of the U.S. companies such as Apple Inc. have recorded massive growths in their revenue because they have been able to pursue international expansion in places such as China. Apple’s new penchant for plus-sized iPhones in gold is targeted at the Chinese market and it seems to be working perfectly.
However, a strong dollar will reduce the sales of American products in international markets because a strong dollar will make American goods expensive to buyers whose currencies are weaker than the dollar. More so, a strong dollar means that these firms will face currency headwinds when they report their financials to U.S. investors. You should not underestimate the political power that corporate America has – and they will continue to lobby for a weak dollar inasmuch as it brings the profits.
2. The American Economy is in Chaos
Secondly, America is running budget deficits, the economy is in chaos, and the Federal Reserve is confused. It is no longer news that the U.S. is running at a serious deficit – the official debt of the federal government remains unyielding at unspeakable highs and it seems the sky is not even the limit. Economists will still need to account for the unofficial debts – think liabilities such as Medicare and Social Security. If you really want to understand the economic chaos in which the U.S. is enmeshed, add the state, county and municipality liabilities to the official and unofficial debts and you’ll get the memo.
To make matters worse, the Fed continues printing money that is not worth the paper on which it is printed. The economic fundamentals are already making the U.S. dollar weak and unending printing of money by the Fed only serves to weaken the dollar further. The worst part is that many countries are starting to reduce their dollar reserves as the Chinese Yuan is gradually ramping up its bid for reserve currency status. The fact that foreign countries are reducing their exposure to the U.S. dollar shows foreign governments no longer think that the U.S. is rock solid economically.
3. Politics has Kept the U.S. Stock in a Limbo
Thirdly, the matter of a strong/weak dollar has been politicized and the currency is stuck in a limbo because the Federal Reserve cannot seem to make up its mind to act one way or the other. To start with, some countries have a handle on their finances and economy such that one is forced to wonder if the people in charge of the economy Stateside ever attended school. Australia, Hong Kong, Finland, and Denmark are among the countries with rock solid finances.
However, a closer observation shows that the countries with solid economic outlooks do not have the same political landscape as the U.S. For one, they are considerably smaller and they have a relatively homogenous cultural population that reduces the mistrust when fiscal decisions need to be made. In the U.S., the political landscape is as heterogeneous as you can imagine and everything can be twisted, misinterpreted, and blown out of proportion.
You can still trade forex profitably even with a weak dollar
If you are trading forex, there might be short-term gains for the dollar, but the long-term trend supports a weak dollar. However, you might want to consider Forex spread betting in order to minimize risks. Spread betting, especially for traders in the UK and Ireland allows you to place long or short spread bets on more than 200 different financial instruments with leverage of up to 400:1.
Summary: Forex might be your hidden gateway to riches just like the untold stories on how the greatest investors of all time made their fortunes. Forex traders might want to pay more attention to the long-term trends that will make a strong dollar nearly impossible.