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Why the US Dollar is one of the safest currencies to trade

7th July 2020 Print

Markets and international currency values spike and fall regularly. Whether from political events, global affairs handling, or corporate news, it’s clear that no currencies are safe from outside influence. While the US may have experienced its share of political ups and downs both at home and abroad over the past few years, its currency is still seen as being a reasonably safe bet.

You are likely to see the US dollar (USD) in many strong pairings through forex trading. There are several reasons for that, so before you head onto an online forex course to learn more, here are a few essential points to consider.

The dollar rules in global payments

Market analysis in recent years shows that even though the US economy has experienced ups and downs, many people continue to flock to the USD. It is what some analysts and experts refer to as a ‘safe haven’ effect. But if the US is so erratic on occasion – politically, economically, or otherwise – why is the currency still holding firm?

It is thought that the USD is a central player in global payments. That is, in the sense that it is not purely Americans who are using it to trade. For many investors and businesses all over the world, the dollar shows a lot of convenience and promise.

Therefore, while currencies such as the EUR and the GBP occasionally fall, as does the USD, more and more people are flocking to the US currency as a global standard. Even in periods where things are less certain or clear, the USD continues to pick up speed.

Volatility is low

Yes, the USD is affected by world events and political shifts. However, compared to many markets still emerging, it is a currency which is remarkably resistant to volatility. That might be because it is such a predictable standard.

In a day and age where more and more emerging markets are dipping and spiking day after day, the dollar provides something of a safe plateau. While it may react badly to some events, it usually reaches something of a stable level in a short time. That may go some way to explain why it’s present in so many top forex pairings.

The USD is everywhere

Cryptocurrency may be prolific, but fiat money in USD is similarly widespread. It is thought that there is more than $1.8trn in physical US cash circulating, not just in the US, but worldwide.

Therefore, many traders and investors see the USD as safe thanks to its sheer availability. For that reason, it is regarded as a bit of a fallback in a world where many of us are risking more volatile options.

The resilience of the USD is apparent. Even during the COVID-19 pandemic, while the currency has taken hits, it has not suffered in terms of long-term interest. If a currency can weather this kind of crisis, then it is likely to be able to withstand just about anything.

The USD leads the way

Despite political dramas and market shifts over the years, there is still no denying that the US holds most of the cards on the world economic stage. 

Many have come to refer to the dollar as the ‘world reserve.’ That moniker alone will tell you that it is seen as something of a safety net should risks fail to pay off elsewhere on more volatile chances. It’s a leader thanks to how prolific it is in modern society. Just because world news impacts its value, it doesn’t stop people from using the money. Oddly enough, the sheer popularity of the USD often seems to be enough to offset any major upsets that would typically cause its value to sink. Therefore, providing people continue to trade in the currency as much as they are doing right now, it’s unlikely it will cease to be the ‘reserve fund’ that many people know it to be.

Are there safer options?

There are many alternative options to trade through forex which traders may consider just as safe, if not more rewarding. For example, the Kuwaiti Dinar (KWD), and the Oman Rial (OMR), continue to emerge as strong players in forex.

That said, the USD should remain a safe bet or purchase for investors and traders the world over. There is little at the moment to suggest that the US dollar’s strength is going anywhere but up, even in light of some seriously uncertain times.

Therefore, for now, at least, it is still likely to be safe for you to keep trading in the USD.