The beginning of 2011 finds the United States still in the midst of a recession. While there are encouraging signs which hint at a strengthening recovery, the unemployment rate in America is still high and the economy is still fragile. The economic situation makes it difficult to give a definite US Dollar forecast for 2011. However, there are some scenarios which make more sense and seem to have a great chance of happening.
1. At the moment, there is a sense that the economic crisis is a thing of the past and fear of a downturn is low. There seems to be a reverse connection between the level of confidence in the market and the value of the US Dollar. The Dollar serves as a sanctuary to which money flees when fear rises. If the current sense of optimism falters, the Dollar will likely increase in value.
In 2011, there are likely to be several cycles of rising and lowering fear, so the Dollar is going to fluctuate in 2011. This will give a lot of opportunities to many traders. You can make a considerable amount of money by trading according to these cycles.
2. The US Dollar is under attack as the global reserve currency. With the level of US debt being as high as it is (approaching 14 trillion), a lot of countries feel that the Dollar should make way to a basket of currencies, or the Euro. I don’t see this taking place in 2011, but if it does, the value of the Dollar may plummet dramatically as there will be big sell-offs.
3. The current interest levels in the US are near zero. During 2010, there were analysts who predicted that these rates will rise. It didn’t happen, partly because the US economy did not recover as quickly as hoped. In 2011, if indeed the recovery takes hold, US interest rates will rise. This will undoubtedly increase the value of the dollar. As interest rates rise, investors will be able to receive a greater return on their investment in Dollar quoted holdings. This will make the dollar more attractive and drive more money in its direction. This part of my Dollar forecast for 2011 is the one I’m most certain of.
4. The Dollar and Euro are the two most commonly traded currencies in the world. The Euro is also the biggest “competitor” of the Dollar. A strong Euro will likely mean a weak Dollar. In 2010, the bailouts of Greece and Ireland weighed heavily on the Euro. In 2011, the prospect of another Eurozone member collapsing is going to make the Euro a shaky investment.
This isn’t a flimsy prospect. Spain, Portugal, and Italy are in vert bad shape and if one of them requires a bailout, the Euro may fall. If the Euro falls, the Dollar will likely rise.
I believe that 2011 will be a good year for the Dollar. It’s impossible to know for sure as a year is a long time, but this is my dollar prediction for 2011.
Similar Posts:
- What is a CD Savings Account?
- New Zealand Dollar: Come Back to Earth!
- Currency Devaluations in the Global Economy
- Asian Focus Video: RBA turnaround; Where are Asian rates headed?
- Pound Stagnates, Lacking Direction
