Currency Profile Of US Dollar (Part II)
Role of monetary and fiscal policy in strengthening or weakening the US Dollar or that matter any other currency is important. The Federal Reserve Board (FED) is responsible for making the monetary policy of United States. Through its Federal Open Market Committee (FOMC), FED sets and implements the monetary policy. The voting members of FOMC are the seven governors of FED plus five presidents of the district reserve banks. Eight meeting of FOMC are held every year. These meetings are widely watched by the analyst for interest rate announcements and changes in growth expectations.
FED has the mandate for long run price stability and sustainable economic growth. FED has a high degree of independence in setting the monetary policy. FED uses the monetary policy to control inflation, unemployment and balanced growth. The most important tool used by FED is its Open Market Operations.
Open market operations involve FEDs sale or purchase of government securities that includes treasury bills, notes and bonds. In increase in FEDs purchases lowers the interest rates while selling of these securities raises the interest rate.
Federal Fund Rate is the key policy target of the FED. It is the interest rate at which the banks lend overnight to one another. The primary interest rate that is affected by these operations is the Federal Fund Rate.
The US fiscal policy is in the control of US Treasury. Fiscal policy means the amount of taxes and government spending for a given year. In fact it is the US Treasury that actually determines the US Dollar policy.
For example, if the US Treasury feels that the US Dollar is under or overvalued, US Treasury can give instructions to the New York Federal Reserve Board to intervene in the forex markets by actually buying or selling US Dollars. Therefore, you should always try to watch the US Treasury views as changes to that view is very important for the currency markets.
EUR/USD, USD/JPY, GBP/USD and USD/CHF are the most heavily traded currency pairs in the global currency markets. These currency pairs represent the most frequently traded currency pairs in the global markets. Over 90% of all currency deals involve the US Dollar. As you can see, all these currency pairs involve US Dollar on either side of the pair. So the most important economic data for the global currency markets is the US Dollar fundamentals.
The US Dollar moves in opposite direction to the gold. There is an almost perfect negative correlation between the US Dollar and the gold prices. This inverse relationship stems from the fact that gold is measure in US Dollars.
Gold is commonly viewed as the ultimate safe haven commodity by the investors all over the globe. When US Dollar depreciates due to global economic uncertainty like the present, gold appreciates. You must know that the gold prices are going up right now. - 23305
FED has the mandate for long run price stability and sustainable economic growth. FED has a high degree of independence in setting the monetary policy. FED uses the monetary policy to control inflation, unemployment and balanced growth. The most important tool used by FED is its Open Market Operations.
Open market operations involve FEDs sale or purchase of government securities that includes treasury bills, notes and bonds. In increase in FEDs purchases lowers the interest rates while selling of these securities raises the interest rate.
Federal Fund Rate is the key policy target of the FED. It is the interest rate at which the banks lend overnight to one another. The primary interest rate that is affected by these operations is the Federal Fund Rate.
The US fiscal policy is in the control of US Treasury. Fiscal policy means the amount of taxes and government spending for a given year. In fact it is the US Treasury that actually determines the US Dollar policy.
For example, if the US Treasury feels that the US Dollar is under or overvalued, US Treasury can give instructions to the New York Federal Reserve Board to intervene in the forex markets by actually buying or selling US Dollars. Therefore, you should always try to watch the US Treasury views as changes to that view is very important for the currency markets.
EUR/USD, USD/JPY, GBP/USD and USD/CHF are the most heavily traded currency pairs in the global currency markets. These currency pairs represent the most frequently traded currency pairs in the global markets. Over 90% of all currency deals involve the US Dollar. As you can see, all these currency pairs involve US Dollar on either side of the pair. So the most important economic data for the global currency markets is the US Dollar fundamentals.
The US Dollar moves in opposite direction to the gold. There is an almost perfect negative correlation between the US Dollar and the gold prices. This inverse relationship stems from the fact that gold is measure in US Dollars.
Gold is commonly viewed as the ultimate safe haven commodity by the investors all over the globe. When US Dollar depreciates due to global economic uncertainty like the present, gold appreciates. You must know that the gold prices are going up right now. - 23305
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano's Forex Signals free. Discover a revolutionary Forex Robot Trading System!
posted by Mr. Forex at
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