The foreign exchange market is extremely susceptible to change because it is easily influenced by external factors. It goes without saying that the landscape of the market in the last 12 months has shifted dramatically, influenced closely by the coronavirus pandemic and its effect on global economies.
The US dollar (USD) is the most widely used currency in the world, with almost 90% of foreign exchange trading involving this influential currency. The USD has also been largely impacted by an array of external factors this year.
In this article, we will look at how the USD is performing at the time of writing, in August 2021, in comparison to January of the same year. This has been a turbulent period for foreign exchange (forex) trading recently, since the US economy has changed dramatically and has had a significant effect upon the national currency’s value.
The US dollar in January 2021
The strength of the US economy is one of the most significant factors that affects the value of the dollar. In January, the country was still struggling to keep the spread of coronavirus under control. As a result, some of the biggest contributing sectors to the economy were unable to operate as usual.
When the month’s Non-farm Payroll was released — a report on the levels of employment in the country — it was revealed that 140,000 jobs had been lost in comparison to the previous month. However, the month of January also evoked strong feelings of hope in the US, with the inauguration of President Joe Biden taking place on the 20th of the month. Biden’s presidential plans included a huge increase of government spending, prioritising the consumer and promising to provide help for smaller businesses and the unemployed.
Additionally, at the end of 2020, COVID-19 vaccines were approved in the US, with plans for its roll-out at the beginning of 2021. At Biden’s inauguration he promised that 100 million people would receive their first dose of the vaccine in his first 100 days in office. This led to hope for the recovery of the US economy, since a successful vaccination programme would enable vulnerable sectors to reopen and individuals to return to work.
The dollar was in a weakened state in January, as a result of the pressures that the pandemic had put on the economy and trader’s anticipation of a rise in inflation rates. However, going forward into 2021, there were strong feelings of hope. These were not misplaced, due to Biden’s successful delivery of his vaccine-rollout promise and the subsequent gradual recovery of the US economy.
The US dollar in August
The US economy has made impressive progress since January 2021, and when the Non-farm Payroll report was released in July, they depicted a staggering increase in employment, with an additional 943,000 jobs added from the previous month. This is following the successful vaccination of more than 164 million people in the US, meaning that more and more individuals could either return to employment or find new jobs. The report also noted that many sectors had experienced a surge in demand following their reopening.
However, with the emergence and spread of the coronavirus Delta variant, President Biden has urged US citizens to get vaccinated, protecting themselves and the economy. For if the new variant of the virus should dominate, businesses would be forced to shut their doors again, and the health service would be put under another wave of extreme pressure.
As a result of these instalments in employment, and prompted by the recovery of the US economy, the dollar currently remains at its highest recorded rate since November 2020. As unemployment continues to fall and more jobs emerge, it is likely that the currency will continue to perform well, so long as the Delta variant is controlled and the economy maintains its current levels of momentum.
Of course, the forex market is extremely volatile and therefore, if you’re considering opening a position, you should have a developed understanding of the factors that can affect price fluctuations and employ a strategy to help to keep you on track and minimise risk.