A fair case can be made that every country in the world is trying to devalue its currency at this time. The reason for a country wanting to devalue its currency is simply because it will help boost exports. In other words, a country with a weak currency can sell more goods abroad. A good example of this would be a weak Japanese Yen should help Toyota Motor Corp (NYSE:TM), Honda Motor Co (NYSE:HMC) and other Japanese companies to sell more cars or products to other nations that have a stronger currency. At this time, almost every country in the world is trying to deflate their currency for this reason.
The U.S. Dollar has been a very strong currency since 2014. Please understand, the U.S. Dollar is not strong because it is such a great currency, it is strong because so many other nations are desperately trying to devalue their currency in order to boost exports and revenues. Below I will list three reasons why the U.S. Dollar will continue to surge over the next year.
1. The European Central Bank (ECB) has implemented their own form of quantitative easing. This includes negative interest rates. Just today, ECB President Mario Draghi said that he stands ready to act with additional stimulus if it sees it as necessary. So in other words, he is ready to try and devalue the Euro. This type of stimulus action be the ECB can only help to strengthen the U.S. Dollar.
2. Japan and its central bank called the Bank of Japan (BOJ) have also been trying to stimulate their economy by following easy monetary policies. Japan has also implemented negative interest rates to their banking system and this policy could continue for the foreseeable future. Japan’s central-bank governor, Haruhiko Kuroda said the Bank of Japan is ready to expand its bond-buying program and cut interest rates further into negative territory as it tries to stimulate economic growth.
3. China is another country that is facing a slowing economy. China is the world’s second largest economy. The giant country is facing slowing growth, defaults, a real estate bubble popping and tightening credit. The Chinese central bank seems to be adding liquidity to the system all the time to try and inflate asset prices. These monetary policies by the Chinese will just help to keep the U.S. Dollar strong in the near term.
Some ways to trade and follow the U.S. Dollar is to track the U.S. Dollar ETF’s. They are PowerShares DB US Dollar Bullish ETF(NYSEARCA:UUP), or the PowerShares DB US Dollar Bearish ETF (NYSEARCA:UDN).