The domestic economy affects the exchange rate of a country. The supposed scene of the US economy
on the economic cycle (i.e. boom, bust, expansion or contraction) is one consideration.
Things like economic growth, economic outlook and inflation gives an indication on the economic health of the country.
on the economic cycle (i.e. boom, bust, expansion or contraction) is one consideration.
Things like economic growth, economic outlook and inflation gives an indication on the economic health of the country.
One of the key problems with the US economy is its debt levels. The US owes net around $3 trillion
to overseas nations. This has the effect on putting downward pressure on the USD. Furthermore,
the US pays more interest on their debt to overseas nation than the interest they receive.
to overseas nations. This has the effect on putting downward pressure on the USD. Furthermore,
the US pays more interest on their debt to overseas nation than the interest they receive.
Differences in interest rates from one country to another also affect the demand of foreign currencies.
Set simply, international investors would rather put their money in a country that pays higher interest
on their investments. This is exactly what happening in the US.FED is reducing its interest rate time & again.
Set simply, international investors would rather put their money in a country that pays higher interest
on their investments. This is exactly what happening in the US.FED is reducing its interest rate time & again.
Countries like China, Russia, England and Japan clutch vast amounts of reserves in foreign currencies and the
USD is just one of the many they hold. It is projected that countries (excluding the US) hold around $13 trillion
in US currency. The major problem here is that if the US economy continues to demonstrate weakness
and the USD continues to plunge, then many nations who hold USD as foreign currency reserves might
sell it and replace it with another nation’s currency, or with gold.
USD is just one of the many they hold. It is projected that countries (excluding the US) hold around $13 trillion
in US currency. The major problem here is that if the US economy continues to demonstrate weakness
and the USD continues to plunge, then many nations who hold USD as foreign currency reserves might
sell it and replace it with another nation’s currency, or with gold.
Two things primarily affect the price of gold. Geopolitical tensions and as an inflation hedge.
When tensions in the Middle East are perceived to be at a very dangerous level, that is, they
could boil over and cause a war in some countries or the supply of oil will be affected, then people
will invest in gold. It is seen as a safe asset to hold in times of difficulty. Inflationary expectations
also influence the prices of gold. This was evident in the 1970s when inflation was very high and
the price of gold increased as well. As mentioned above, central banks hold gold in their reserves,
just in case there is a geopolitical tension or world inflationary pressures.
When tensions in the Middle East are perceived to be at a very dangerous level, that is, they
could boil over and cause a war in some countries or the supply of oil will be affected, then people
will invest in gold. It is seen as a safe asset to hold in times of difficulty. Inflationary expectations
also influence the prices of gold. This was evident in the 1970s when inflation was very high and
the price of gold increased as well. As mentioned above, central banks hold gold in their reserves,
just in case there is a geopolitical tension or world inflationary pressures.
Earlier USD used to be considered the safe shelter; this is not the case any more.
Many investors/central banks are now buying gold as their safe haven asset to protect
itself from worldwide economic shocks or tensions. The USD diversification is set to
continue with the US having such a large foreign debt and weakening economic conditions.
Many investors/central banks are now buying gold as their safe haven asset to protect
itself from worldwide economic shocks or tensions. The USD diversification is set to
continue with the US having such a large foreign debt and weakening economic conditions.
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