At the start of the new trading week, which is the twenty-eighth in 2019 the Foreign Exchange market – Forex market, experienced the heightened investors’ interest in the US dollar (USD) whose exchange rate vis-à-vis other world currencies increased. During the European Tuesday trading morning on 9 July, 2019, the US dollar exchange rate, measured by the US Dollar Currency Index (DXY), was already above USD 97 points compared to the previous week.
As mentioned previously, on 9 July, 2019, at 8:46 CET, the US dollar (USD) was at USD 97,45 points with a daily growth of + 0.06% of its point value. On a given day and time, the EUR/USD global currency pair traded on the Forex market at a mutual exchange rate of US$1.1111 per EUR, with a daily USD increase of 0.03% against the EUR. The US dollar also strengthened its exchange rate against the Japanese yen (JPY) at JPY108.75 per USD, with a daily USD appreciation of + 0.04% against the JPY.
According to economic rapporteurs, along with foreign exchange market analysts, investors should now focus on buying emerging market currencies against the US dollar. “We do think there is a basket of emerging market currencies that look appealing as the Fed is poised now to begin cutting rates as opposed to raising rates,” said Mike Ryan, chief investment officer for the Americas at UBS Global Wealth Management. These challenges come when the US central bank – Federal Reserve or simply the Fed – is considering a serious cut in US interest rates. As US dollar-based investments are becoming less interesting, it can weaken the US dollar against other currencies such as the ones of the developing countries.
What we see now is that the dollar is probably topped out against a number of the emerging market currencies,” said Mike Ryan. Another world known analyst and currency trading expert who shared his opinion and outlined the business strategy is Mr. Khoon Goh, head of Asia research at ANZ Bank: “The picture in terms of the U.S. dollar index is “a little bit more muddy,” but it’s clearer for high-yielding currencies of countries with a “compelling growth story” or scope for economic reforms that will spur foreign inflows. In addition, Mr. Goh also said “ANZ continues to favor some currencies in Asia such as the Indian rupee and the Indonesian rupiah. Benchmark interest rates in India and Indonesia are 5.75% and 6%, respectively, compared to the Fed’s target between 2.25% and 2.5%, according to Trading Economics”.
Furthermore, the carry trade strategy mentioned in this context, is very suitable for trading the US dollar against currencies of emerging economies or economies with potential for rapid growth. The term “carry trade” refers to a strategy in which investors borrow in a currency with low interest rates to buy assets in a currency with higher interest rates. This way, investors can make profit on their investments in one currency and pay less interest on the borrowed amount.