Why is the Dollar Climbing?

A pertinent question among Forex traders today is, “Why is the dollar climbing?” There have been a number of reasons why the dollar has fallen of late. The US Federal Reserve has been following a policy intended to promote investment and create jobs. As such interest rates have been kept low. When asked about this, the Fed as responded that it is less concerned about inflation than with stifling the economic recovery. Why has the dollar faltered in relation to the Euro? Forex investors have looked outside of the US with its low interest rates for profits to places such as the European Union and the Euro for higher interest rates. As the Euro has faltered due to the persistent Greek debt crisis this strategy has backfired on many Forex traders. So, why is the dollar climbing? Is it just because the Euro is having problems?

An interesting event may well be the fact that US multinationals are said to be bringing profits home to the USA. This could be related to their collective belief that the dollar will soon rally. Whatever the reason the effect on the dollar could well be similar to what happen with Yen repatriation when Japanese companies brought home Yen to deal with the after effects of the earthquake and tsunami. If, in fact, US multinationals bring profits home to the USA the purchase of dollar with the various currencies of the world will drive up the price of the dollar. Traders can successfully anticipate this situation in two ways. By engaging to continual analysis of the dollar traders will stay current on US monetary policy. They will be aware of companies beginning to purchase dollars. By following technical pricing patterns traders will not need to ask, why is the dollar climbing? They will simply trade according to market patterns and pocket their profits.

We may ask why is the dollar climbing when we hear of huge debt problems in the US as well as solid growth in other economies over the last couple of years. One of the issues of the years has been the lack of transparency in many economies. An example is the strength of the Japanese economy and the Yen during the 1980’s. The Yen was strong and the Japanese industrial machine, seemingly, could do no wrong. Japanese investors were buying US assets from Colombia pictures on the West Coast to Rockefeller Center in New York City. Shortly after these well published purchases it became apparent that there were problems in Japan. Much high level lending in Japan took place based upon handshakes and old school relationships. Encouraged by the government loans were made to support new industry and business even when these were not especially profitable. When this became known the proverbial house of cards came tumbling down. Japan has languished with near zero percent interest rates for twenty years as a result. The country has remained prosperous but the myth of invincibility was busted and the Yen did not go on to become the world’s dominant currency. During this time many have continued to view the dollar as a safe haven currency. So, why is the dollar climbing? As always it has to do with a variety of factors but in the end it means that folks want to buy dollars and will pay a higher price.