dollar

 

What Is the United States Dollar?

                                                        

                                        The USD stands for United States dollar is the official currency of United States of America. The United States dollar is also known as U.S. dollar, is consists of 100 cents. It is depicted by the symbol $ or another way to represent it is US$ to make it different from the other dollar-based currencies.

The U.S. dollar is calculated a benchmark currency and is the mostly used currency in the transactions in the whole world. Further, it is used as the official currency in the many localities outside of the U.S., whereas many other people use it beside their own as an unofficial currency. It is also affecting the rate of gold.

Causes for the strength of Dollar:

Stronger economic recovery in the US is first cause of rising USD. The previous economic growth figures Q3 2014 showed the very strong growth of the 5%. With the strong economic growth, unemployment has decrease to the 5.9%. This is an in marked difference to the rest of the other developed world. The Eurozone, in specific, is fighting to post anything separate than anemic growth; The unemployment of EU, caused the increase in US Dollar. Strong growth points to maximize interest rates because of the presumptions of rising interest rates.

As well as the news that the US will be end asset purchases the further to strengthens the Dollar rate. Quantitative easing which involves increasing supply of currency tends to lower the value – because quantitative easing is more liable to increase inflation.

Despite strong economic growth, US inflation is still very low at the 1.3%, making the US goods relatively very competitive.

Low price of the Euro is another cause. Euros are a very big trading partner of US; the Eurozone is at the very different platform of the economic cycle. Fall in oil prices have shoved the Eurozone into the deflation (Inflation rate -0.2%). with the Combination of low growth and the high unemployment, there is a prediction that the ECB will make an effort for some form of asset purchase or quantitative easing. This effort is to be making the dollar more attractive than Eurozone; the ongoing concerns over Eurozone debt is another factor which will encourage capital flows to the US.

The Eurozone are not the one big economy that is stuck in recession. Japan is in the recession and the Latin American countries, Like Brazil are struggling for themselves. Even the big two Asian economies of China and India are slowing down.

Another cause of rising USD is decrease in prices of oil. Falling oil prices are usually credible for the US economy. It helps in reducing the inflation and the costs for the business. Obliviously, it is true that the US has many oil and other energy sectors, which will be spoiled by the low prices. But the US economy is much and more broader and is a great customer of oil. Its destinies are definitely not bound to oil prices, like many of its challengers, like as Russia.

An opposite relationship between the oil prices and the dollar. As oil prices are usually priced in the dollars. Falling of oil prices often lead to the rise in the US dollar.

            A major cause of rise in dollar is Rising interest rates. The US is surfacing from a in depth balance sheet recession and the liquidity trap – with the strong growth and dinging unemployment, it has been become a matter of when the Fed will consider raising interest rates from the current low of 0.5%. Higher US interest rates compared to the rest of the world will attract capital flows into the US. This will increase the demand for dollars as investors look to save in US dollar. This hot money flows will push up the value of the dollar. Other countries don’t look ready to raise interest rates yet.

Beyond investing in companies that benefit from a growing economy, global investors in many parts of the world are looking for a safe haven to park their money. The large pool of dollars available at any given time makes that easy to do. As the world’s largest and most diversified economy, U.S. gross domestic product represents nearly a fifth of the total worldwide. So nearly one out of every five dollars in global economic value is created in the United States.

Investors also like the relative safety of U.S. Treasurys, which are easily traded and currently pay a higher yield than government bonds issued by other large economies, such as Japan and big European countries.

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Even though rates on capitals are historically lower, they are still higher than the opposition. The 10-year U.S. Treasury production has fallen to the 1.75 percent, less than the half what it was the five years ago. But the yield on the Germany’s 10-year recently hit just .33 percent, and a counterpart Japanese government association recently yielded 0.22 percent. many shorter-term German associations are indeed paying negative interest rates, it means investors terminated losing the any little piece of their savings for sake of to keep themselves safe.

Those productions are something of any moving target, as the central banks around the world continue for tinker for the furnishing of their local currencies. At this moment those forces are also strengthen up the dollar. In the U.S. the Federal deposits is widely expected to uplift short-term interest rates in this year, for making U.S. rates more appealing. European central bankers, at the same time, recently proclaimed they are going to flood the financial system with the euros, driving down the rates and to further reduce their value against dollar.