Once upon a time, we talked about the land of the rising sun (i.e. Japan). Today however, the story is definitely all about the rising dollar. For the past five months, the US dollar has seen some good growth and this could mean that a turnaround in the world economy is afoot. Here's what you need to know:
The Dollar Is Still Important
For all that there has been talk lately about the dollar becoming something akin to the British Pound (i.e. a former reserve currency), the fact is that for the foreseeable future, the dollar will remain king of the jungle for the simple reason that the dollar doesn't really have any replacement. The fact that it has been going up against most major currencies recently is in my humble opinion, further proof that the dollar will retain its position for the foreseeable future.
The Elections
And before anyone hits up the comment button and tells me that this may be in part due to buoyancy from the American elections, I've already thought of that. Yes, it's possible that the elections are having some kind of an effect on the value of the dollar, though to be honest, I believe that the exact opposite of buoyancy should be occurring because of this.
As the Republican candidates vie for the nomination while President Obama tries to figure out how he's going to fight off what is sure to be a formidable Republican effort to unseat him, the political infighting should be anything but a cause for buoyancy of the dollar.
The Iran Situation Is Also Having the Opposite Effect
With the constant back and forth about the price of oil and the Iran situation, one would imagine as well that the dollar would be taking a beating since the Americans are at the forefront of the international efforts to stop the Iranian bomb. However, in spite of increasing rhetoric on the part of the Israelis and the American pledge to support Israel in any decision she makes, the dollar is still rising and not falling.
So What's Causing This?
I think that this is simply a case of what as kids we used to call "?the willies." The fact is that the global economy is still on somewhat shaky ground. Europe's debt mess is still roiling the world, Iran is threatening to destabilize the price of oil and economists are still talking about the possibility of a double dip recession both in the United States and worldwide.
All of this has people rushing to find safe havens and like it or not, America is seen as a safe haven. This means that even with all the problems the American economy has been experiencing recently, it's still the place to go for keeping your money safe.
How You Can Profit
I'd be looking at buying dollars in the short term though not the long term. I believe the dollar may yet falter once investors start seeing calmer news throughout the world, however for as long as the world's economy remains on shaky ground and especially for as long as the Iranian situation remains volatile, I'd expect the dollar to keep rising. In any event, regardless of whether it rises or falls, I don't see it being replaced as the world's reserve currency any time soon.