Favoring the Euro Over the Dollar 

 

In the not so distant past there was talk of the Euro replacing the US dollar as the medium of exchange for commodities, a development which would create the need for constant use of forex convertors. Because of the dollar’s strong performance in the face of the worst economic crisis the world has faced since the great depression of the 30’s most talk of replacing the US dollar as the world’s reserve currency has ceased. Naysayers had cited the massive national debt of the US and a bloated government budget as reasons for the dollar’s possible decline.

US Dollar Anchor For Global Economy 

 

In recent years talk of nations reducing their dollar reserves in favor of the Euro prompted speculation that the dollar would no longer be the favored currency for exchange. Such talk ceased when investors flocked to the dollar during the economic crisis. Said Michael Woolfolk, senior currency strategist at Bank of New York Mellon, “Talk of the euro replacing the dollar is off the table, making it seem like the before mentioned forex convertors would be off the hook. The U.S. has the only economy in the world that supports a strong currency by policy and is an anchor for the global economy.” Investors understood that the United States was the only nation with the will and the economic infrastructure to act quickly to address the global crisis.

In a statement Andrew B. Busch, global FX strategist BMO Capital Markets said, “The United States continues to be the only entity sufficiently large and coordinated enough to deal with the multiple issues surrounding the credit crisis. It clearly is not over.” Although the credit crisis started in the US because of the sub prime mortgage meltdown investors were quick to react to the massive US bailout plan.

Dollar Rebounds After Slide 

 

The dollar had endured a six year slide against the Euro and its value had changed little in the first part of 2008. When the magnitude of the economic crisis became apparent the dollar experienced a significant rebound, forcing traders to rely heavily on FX convertors to keep track of the dollars movements. The Intercontinental Exchange’s U.S. dollar index <.DXY has climbed 21.3 percent since that time, roughly corresponding to a 21.8 percent drop by the euro against the dollar. The British pound has dropped 23 percent and the Australian dollar dropped 37.5 percent against the U.S. dollar.

Dollar Helps Oil Producers 

 

The US dollar has also gained significantly against other world currencies and remains strong despite economic conditions in the US. Countries hostile to US policies such as Iran talked of pricing oil in Euros but no action followed. With crude oil prices down 56 percent from its peak in mid-July, there is even less incentive to move commodity pricing away from the dollar. It is widely recognized that a strong dollar is beneficial to Mid Eastern oil producers.

The dollar remains strong in Forex markets and risk adverse investors are flocking to the dollar. At present the dollar is the currency of choice for Forex traders and investors, as reflected in various FX converters used all over the internet.