There are two questions on everyone’s mind these days. Who will win the U.S. election and how will it affect the value of the U.S. dollar? Everyone disagrees about where the U.S. dollar will land post election, but one thing’s for sure: understanding the larger context of currency valuations can help you make an informed decision with your money.
The value of the U.S. dollar (USD) is based in part on the perception of the relative strength of the U.S. economy. The US remains the world’s largest economy by GDP, and the USD is the world’s primary reserve currency which means it accounts for nearly 43% of all currency trading. To put that in perspective, the second most popular currency, the euro (EUR) accounts for only about 17%.1 Under normal conditions, factors that sway USD movements may be announcements from the Federal Reserve and the balance of trade (the value of exports versus imports). However, the looming uncertainty of the U.S. election means speculation by professional traders may be playing a larger than usual role in USD valuations.
The U.S. dollar has gained considerable ground against the GBP especially in the aftermath of the Brexit vote. Prior to Brexit, it took as much as $1.41 USD to buy £1. Since the beginning of October, the dollar has held strong against the pound at around $1.22 to £1. At first glance, it may appear that the turbulent election season hasn’t impacted the USD much, but that’s only part of the story.
Along with the Japanese yen (JPY) and Swiss franc (CHF), the USD is often considered a safe haven currency because of its status as a global reserve currency. But when analysed against the JPY and CHF, the USD is not performing nearly as well in 2016.
From a high near 123 USD/JPY at the end of 2015, the USD is hovering near its lowest levels of the year around 103. In other words, the yen is up 15% over the dollar. Wow.
The USD/CHF exchange rate has remained relatively flat as the yen seems to be the primary safe haven proxy. But the question remains: will investors continue to shun the U.S. dollar as a safe haven currency in the wake of the US election? If the answer is yes, one might expect the JPY (and possibly the CHF) to make further gains against the dollar. However, if the election outcome restores confidence in the USD, it’s anyone’s guess as to how high it could go.
Because currencies can be so volatile, many professional traders take steps to hedge their risk when trading currencies. With UKForex, you can too. By locking in an exchange rate for up to 12 months using a Forward Contract, you can help keep your cash flow predictable and stay in control of your money. If you do decide to wait until election day to transfer your funds, you can count on UKForex. We’re open 24/7, nights, weekends, holidays and during Brexit-style volatility. We’ll be live tweeting on the day of the election, so you can learn how others are moving their money, which can help you make an informed choice. No matter who wins this election, with UKForex the real winner is you.
This communication has been prepared by sales personnel of UKForex or its affiliates. Sales personnel are not research analysts and are not accredited, licensed or otherwise qualified to provide advice on market conditions. This commentary is intended for informational purposes only and does not constitute substantive “research” as that term is defined by applicable regulations. Any opinions, views or analysis expressed herein are subject to change without notice and may differ or be contrary to the opinions of other UKForex personnel. UKForex is an online foreign currency exchange money transfer service and does not offer any form of margin or speculative trading facilities; and neither it nor its employees are in the business of providing, and do not provide advice to consumers or investors. The information contained herein does not take into account the financial situation or objectives of any particular person and should not be construed as business or investment advice or investment recommendations. Recipients of this communication should exercise independent judgment and obtain advice from their legal, tax or financial advisors. The information set forth in this document has been obtained from third party sources that are believed to be reliable, but its accuracy and completeness cannot be assured, and such data may be incomplete or condensed and in fact provide only a limited view of a particular market. Consequently, any person acting on the analysis, opinions or views expressed herein, does so at his or her own risk. UKForex and its affiliates will not accept liability for any loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on information contained in or derived from this communication.
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