Are The Woes Of The World’s Leading Currency Coming To An End?

Friday October 16, 2009

The world’s top currency – the reserve currency and the one that seems almost impervious to whatever is happening in the currency markets – is the US dollar.  But just as many other lesser currencies around the world have struggled in the recession, so has the mighty dollar. 

And in fact it is only in recent days that the slide of the past year or more has received a welcome boost, sending the US dollar in the opposite (and more preferable) direction.


You can see these results by taking a look at the US Dollar Index.  Not everyone is aware of what this is, as some prefer to see how the US dollar is doing against individual currencies rather than anything else.  But the US Dollar Index is the very thing that has been under pressure throughout the last year or more, and now we are seeing something of a comeback.


There are six other currencies in this Index, and you will find the names of the most popular currencies in there along with the US dollar.  The Euro and the British pound are included, but alongside these there are the other European currencies the Swedish krona and the Swiss franc.  The final two are the Japanese yen and the Canadian dollar.


These six currencies are usually referred to as a ‘basket’.  And it would seem that we have Federal Reserve Chairman Ben Bernanke to thank for this slight upswing in the value of the US dollar.  He commented on possible future moves by the Federal Reserve with regard to monetary policy.  The desire – as it is in many other countries – is to avoid inflation taking a grip when the economy gets back on its feet again.


So it would seem the US dollar has benefited from this announcement – although it wasn’t particularly any earth shattering news that led to the rise.  Perhaps what is more important is whether that improvement lasts.  If you take a look at the US Dollar Index as it has been plotted out over the last year or so, it has gone up and down on a daily basis much as you would always expect.  But the general trend has been downwards.


So even though the 9th October marked the day of a fight back in the US dollar with regard to this Index, perhaps the most important question is whether this resurgence will last.  If it doesn’t, the news stories that have hit the internet and the headlines regarding the rise could turn out to be a little premature.


It is understandable though that the change should be grasped upon as a possible sign of improvement overall.  The US dollar is indeed the world’s reserve currency.  It is the most important one of all the currencies in the world, and if it is struggling it says a lot for the state of the world economy as a whole.


So keep one eye firmly on what happens over the coming days and weeks.  The story may not end here.