Forex traders flocking to US dollar. Here's why
A recent resurgence in USD has traders leaving currencies like AUD and JPY. Learn what is driving this trend and where markets could go as a result.
AUD/USD fell over 100 pips after the Reserve Bank of Australia (RBA) held rates. USD/JPY rallied over 500 pips from Friday after the Bank of Japan (BoJ) held rates. Why has inaction from central banks led to such US dollar strength?
Global expectations
With rates at 4.1%, the RBA's decision to stay is not inherently a bad signal for their currency. However, because they were expected to raise by 25 bps, markets began to tilt away from the Australian dollar. When additional banks like the BoJ act similarly, the US becomes one of the only economies that continually meets expectations. Traders are reacting by funneling into USD across pairs.
The Bank of England and the British pound retain strength as well after meeting expectations with a 25 bps rate hike. Traders will likely look for action in GBP/USD as markets determine which currency is stronger.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like IG. USD pairs can be found in IG's platform under the 'USD Pairs' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
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