Why did the US dollar strengthen vs other currencies?

USD / EUR pairThis past week has been highlighted by a strengthening US dollar in comparison to its main counterparts. This movement could also be seen in the rather impressive stock market rally seen on the US markets Thursday. This, in turn, gave the dollar the apparent lead role as a safe haven currency as opposed to a weak Euro.

There are two main factors which have contributed to this rise on the Forex trading markets; binary options traders taking particular advantage of the rise in the greenback.

The first variable which needs to be addressed here is the headway gained in reference to political negotiations concerning the upcoming fiscal “cliff” so often referred to in recent times. Although much work still needs to be done, the short-term rise in the dollar is seen as a reflection of Forex traders’ hopes that a resolution can be reached shortly.

A second factor of perhaps more longitudinal importance is the fact that hopes exist that domestic holiday sales will echo a stronger economy than the previous year. If we finally add in the recent positive jobless figures in the United States, binary traders are inclined to favour the dollar.

The second variable of importance is the slowdown in global growth. This has turned many binary traders to exercise their options to utilise the US dollar as a hedge against the perceived stagnation of the global economy. Factoring in a fragile Eurozone and the potential for Spain to ask for a full sovereign bailout from the ECB it is easy to understand why binary traders are inclined to invest in the dollar, even if for short term profit taking against other benchmark currencies.

As binary Forex trading is viewed as the safer option in a fluid economy, the week ahead will most likely see continued interest in the dollar. This may be especially true if the rumours of Spain’s full bailout are further substantiated.

Sunday, December 9th, 2012 USA, europe, news

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