Right now, the US dollar is fairly strong in currency trading on the FX market. The euro is enjoying a bit of a rally, but the slightest hint that the economy is in trouble, and the flight to safety -- to the greenback -- will resume. So this begs the question: If the US is, indeed, the first out of the recession, what will it do to the dollar in forex trading?
First In, First Out
There has been a great deal of speculation that the US economy will follow the First In, First Out rule: As the first G7 economy to enter a recession (back in 2007), it is likely to be the first economy to exit a recession and make a recovery. Besides, the rest of the world relies on the US to make a recovery, Kathy Lien points out in FX360:
The other way to look at the current economic situation is that
if the US economy does not recover, no one else will. Globalization has
increased the mutual dependency of many countries. For export dependent
countries in the Eurozone and Asia, a rebound in US demand is essential
for a recovery.
That's part of the reason that the dollar is so popular in forex trading: It's a foregone conclusion that the US economy will recover. But what happens to the greenback in currency trading when it does?
Chances are, a new shift toward fundamentals will accompany economic recovery. And that means a focus on the large amounts of debt being carried by the US government (moving closer to a bad bank isn't really helping much). So it depends on what happens, and how the economy is viewed as it moves toward recovery. It will be an interesting few months for the US dollar in forex trading.
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