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Originally posted by hiram over the past few months ive been wondering.. why is it that even in our economic slowdown the dollar continues to rally against the euro and other currencies? also what makes a currency fall or trade higher than another? i can understand this happening with commodities as there is a market and supply/demand. im not looking for an in depth answer as im sure there are countless reasons, a simple answer will suffice.

I'm not very knowledgeable in regards to currency trading but I do know that a lot of people have been selling their stocks and moving into cash and dollar-denominated Treasury notes.

Of course, this could also be a reason why the dollar is rising.

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Given the sheer scale of China's foreign reserves - now $1,800bn (£970bn) - any shift in its exchange policy now ripples around the globe. The covert buying may help to explain at least part of the explosive dollar rebound over recent weeks.

ive heard of people liquidating their stock as well in favor or dollars. is the almighty dollar the "gold" of currency markets therefore seen as more stable in tough times?

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Every country is in for a world of pain but the U.S. is perceived to have acted soonest to prevent a depression. European countries are behind the curve, so people are putting their faith in dollars as a safe haven.

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Originally posted by ******** america makes a lot of cr4p.

We used to make quality products back when the GDP was still dominated by production (as opposed to today's high level of consumption.)

so what would need to happen in order keep the dollar as stable as the euro?

why is it that currency trading does not(always) reflect the current state of its economy?

is the dollar rally temporary and soon to fade?

forgive me for my ignorance

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YEN CARRY TRADE!

lol

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soulful/latin/deep house + jazz

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Originally posted by hiram why is it that currency trading does not(always) reflect the current state of its economy?

The only thing I can think of is supply and demand.

I've been following Peter Schiff pretty closely.

This is from today on CNBC where he talks about the dollar and gold:

quote:

Originally posted by hiram over the past few months ive been wondering.. why is it that even in our economic slowdown the dollar continues to rally against the euro and other currencies? also what makes a currency fall or trade higher than another? i can understand this happening with commodities as there is a market and supply/demand. im not looking for an in depth answer as im sure there are countless reasons, a simple answer will suffice.

there are many reasons. Currency derives its value from interest rates, perceived economic strength, cross border trade, account deficit, public debt, just to name a few. One possible reason for the dollar strengthening against the euro is, as pointed out by capitalist, the US is seen as being ahead of the curve. Also (this is my theory), if you look at the worldwide bailouts, europe has actually pledged more money to help its banks. Germany alone has pledged around 700 billion dollars to help its financial sector (a much greater % of its GDP than the US bailout). On average, european countries are pledging a much greater percentage of their GDPs on these bailouts. That means these countries are injecting far more euros into the system than the US is injecting dollars into the system.

the comment about commodities being purchased in dollars actually doesn't explain why the dollar is strengthening. if demand for commodities is weakening, the demand for the dollar would also weaken because many commodities are traded in dollars. with less demand for the commodity comes less demand for dollars to purchase that commodity.

also, as trancer stated, many people are investing in US treasuries. they need to convert their currency into dollars in order to purchase the treasuries.

quote:

Originally posted by hiram over the past few months ive been wondering.. why is it that even in our economic slowdown the dollar continues to rally against the euro and other currencies? also what makes a currency fall or trade higher than another? i can understand this happening with commodities as there is a market and supply/demand. im not looking for an in depth answer as im sure there are countless reasons, a simple answer will suffice.

There is a global economic slowdown and not a lot of trust in financial institutions. They are barely lending any money to each other. So the world's investors are flocking to US Treasury Bonds.

I would also point out the relationship between our imports and exports. For example, it is in China's interest that our dollar remain strong, so we can continue buying imports from them. So, they would likewise buy US Treasury Bonds to help prop up our dollar, and so we continue buying Chinese products.

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Originally posted by Krypton There is a global economic slowdown and not a lot of trust in financial institutions. They are barely lending any money to each other. So the world's investors are flocking to US Treasury Bonds. I would also point out the relationship between our imports and exports. For example, it is in China's interest that our dollar remain strong, so we can continue buying imports from them. So, they would likewise buy US Treasury Bonds to help prop up our dollar, and so we continue buying Chinese products.

is this the reason why Chinese banks are requiring to hold more dollars than usual? as stated in the article linked in this thread?

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