Forex Walkthrough

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Level 5 Economics - U.S. Dollar

As we've learned, the forex market is truly a global marketplace, and the economics behind the currencies we trade are a major driver in the market. By gaining a greater understanding of the history and economic policies behind some of the most traded currencies in forex, we can learn why forex traders trade certain pairs and how you can be successful doing the same. So let's take a closer look at the eight (it's actually nine, but who's counting?) most-traded currencies in forex. (Read Forex Courses Teach Beginners How To Trade for more information.)

1. U.S. Dollar (USD)
Central Bank: Federal Reserve (Fed)
Current Interest Rate Information: Link here

The Almighty Dollar
Created in 1913 by the Federal Reserve Act, the Federal Reserve System (also known as the Fed) is the central banking agency of the U.S. The Fed is headed by a chairman and board of governors, with the majority of the focus being placed on the branch known as the Federal Open Market Committee (FOMC). The FOMC supervises open market operations as well as monetary policy, namely interest rates.

The FOMC is made up of five of the 12 current Federal Reserve Bank presidents and seven members of the Federal Reserve Board; the Federal Reserve Bank of New York has a permanent seat on the committee. Even though there are 12 voting members, non-members (including additional Fed Bank presidents) are invited to share their views on the current economic situation whenever the committee meets, which is eight times per calendar year. (For more information on the Federal Reserve, read our Federal Reserve Tutorial.)

Also referred to as the greenback, the U.S. dollar (USD) is the domestic currency of the world's largest economy, the United States. Just like any other currency, the dollar is supported by numerous economic fundamentals, including gross domestic product, manufacturing and employment reports. However, the U.S. dollar is also greatly influenced by the central bank and any announcements about interest rate policy. The U.S. dollar is a benchmark that trades against every other major currency, especially the euro, Japanese yen and British pound. (For further reading about trading this currency, see Taking Advantage Of A Weak U.S. Dollar.)

European Euro


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RELATED TERMS
  1. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
  2. Target Rate

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  3. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  4. 1913 Federal Reserve Act

    The 1913 U.S. legislation that created the current Federal Reserve ...
  5. Federal Reserve Bank Of New York

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  6. Federal Reserve Credit

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RELATED FAQS
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  2. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
  3. Who determines the reserve ratio?

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  4. Who controls the Federal Reserve Bank?

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  5. Why would the Federal Reserve change the reserve ratio?

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