Forex Walkthrough

AAA

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
Related Articles
  1. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  2. Trading Strategies

    The Top Spread-Betting Strategies

    What are the most commonly followed spread-betting strategies (in countries where it's legal)?
  3. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
  4. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  5. Trading Strategies

    Who Actually Trades or Invests In Penny Stocks?

    Although penny stocks are highly speculative, millions of people trade them daily. Here are 10 different types who do.
  6. Chart Advisor

    4 Stocks Still Flashing Buy Signals

    In the midst of volatility and a big market sell-off last week, these stocks are flashing buy signals.
  7. Investing Basics

    Why do Debt to Equity Ratios Vary From Industry to Industry?

    Obtain a better understanding of the debt/equity ratio, and learn why this fundamental financial metric varies significantly between industries.
  8. Technical Indicators

    Understanding Trend Analysis

    Trend analysis is the use of past performance to predict future price movement of a security.
  9. Fundamental Analysis

    Calculating Return on Net Assets

    Return on net assets measures a company’s financial performance.
  10. Forex Education

    These Are The Best Hours To Trade the British Pound

    The best times to trade the British pound are centered around economic releases at 1:30 am, 2:00 am, 8:30 am and 10:00 am U.S. ET.
RELATED TERMS
  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Real Estate Investment Trust - ...

    A REIT is a type of security that invests in real estate through ...
  3. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  5. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  3. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!