Forex Market: Fed Withdraws Monetary Liquidity – Will the Dollar Strengthen Further?


The dollar and the Federal Reserve (FED) have been market players since the beginning of the Coronavirus crisis. For, despite the gloomiest predictions about the future of the currency, its value has not only remained stable. Will it affect the Forex market?

This can be seen in the value of the Dollar against the Euro, where the American currency has experienced small gains of around 1.11. A trend that can also be seen in its relationship with the British pound where it is around 1.2341.

Forex Market: Dollar Gains on Weekly Trading

The fatalistic predictions
This development in the value of the USD seems to go against the fatalistic predictions made by many market analysts. They saw the accelerated issuance of money by the Iq Option as a threat to the value of the Dollar.
An analysis that seems to make sense at first glance, as by introducing billions of dollars into the economy in a matter of weeks, the Fed was doing nothing more than exaggerating the supply of dollars in the market.

And as economic theory indicates, and it has been proven in countries such as Venezuela and Zimbabwe, such an increase in supply leads to hyperinflation.

But this is not the trend we have been observing. For, the more stimulus the Fed announces, the more the price of the dollar rises. And with it, the value of major US stock market indices such as the S&P 500 or the Dow Jones, which are also rising.

The Coronavirus and its effect on the dollar

The reality is that, although it may seem contradictory at first, the revaluation of the dollar is a consequence of the Coronavirus. For, although the pandemic has forced governments around the world to issue monstrous amounts of money, it has also caused capital to flee in search of refuge.

And right now, there is no better refuge for investors than the United States and its currency. So, as the supply of dollars in the market by the Fed has increased, so has the demand for them. By using the U.S. dollar as a safe-haven for value, investing in stocks on the New York Stock Exchange.

Thus, now faced with the upsurge of Coronavirus cases in the Western world, and what appears to be the acceleration of the pandemic in emerging markets such as India. We can expect a deepening of this trend, and an even stronger appreciation of the dollar in the coming days.

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