The U.S. dollar is the strongest currency in the world. In fact, roughly 62 percent of central banks’ foreign exchange reserves are based in the dollar. The euro comes in a distant second place at 21 percent.
However, it is important to note that currency value fluctuates on a daily basis. World events, such as the Brexit, draw investors towards the dollar as a safe haven.
The trade dispute with China, on the other hand, weighs against the dollar’s value. Read on to learn why the US currency value is rising in 2019. Explore world events and other factors that impact the dollar’s value.
1. Brexit
Often, American businesses mistakenly ignore monetary policy and currency fluctuations. Business owners continue routine operations, such as using the Pay Stub Creator. Meanwhile, political turmoil in the United Kingdom (UK) has the potential to drive up the cost of imports.
For the past several years, the UK has been transitioning out of the European Union (EU). This separation is commonly referred to as Brexit.
In 2016, the UK voted to leave the EU. For the subsequent 3 years, the UK parliament has tried and failed to produce an acceptable plan to execute the Brexit.
This failure has pushed the economic impact of leaving the EU down the road. However, when the UK finally does leave, there will be significant economic uncertainty and risk. The truth is that economists are unsure exactly how a post-Brexit economy will look.
Since the British pound is one of the world’s major stores of value, the Brexit will impact global currency and the dollar. Currency investors that fear the risk associated with Brexit are reallocating their funds to the U.S. dollar.
2. Chinese Trade Dispute
Another factor weighing on currency markets is the trade dispute between China and the United States. One reason that investors love the dollar is that the American market is so large and strong.
However, economists fear that a prolonged trade dispute could push the U.S. into a recession. Experts are hoping that the two parties can strike a long-term agreement and resolve their issues.
This action would reinforce the American economy and push the dollar’s value even higher. Resolution of this trade war is another way investors seek to earn money.
3. Global Economic Downturn
Economies around the world are starting to slow down. The International Monetary Fund (IMF) is forecasting the slowest global growth rate since the Great Recession.
In fact, economic growth fell from 3.6 to 3.3 percent over the past year. At the same time, the American economy remains strong. It is likely to continue serving as a safe haven for currency investors that are averse to risk.
A Recap of U.S. Currency Value
The United States offers currency investors a safe bet when compared with volatile global markets. As we move into the latter part of 2019, it is important to watch events unfolding in the UK and China.
Depending on what happens with Brexit and the China trade dispute, the U.S. dollar has the potential to rise even further. If you enjoyed this article about U.S. currency value, check out our business blog for other great content.
