A new player

Join Anyoption and take advantage of the volatility of the markets ..Start Trading TODAY!

The Dollar’s status as the world’s reserve currency knew its difficulties. Towards the late 1960’s, the number of dollars worldwide far exceeded the amount of gold at the Fed’s vaults. This led the Fed to announce it will no longer be able to convert dollars to gold at the aforementioned ratio, or any other, effectively departing from the gold standard. Another act often considered to counter the depart from the gold standard was an agreement signed between the U.S. and Saudi Arabia in 1973, by which Saudi Arabia's oil sales would be denominated in U.S. dollars. Naturally, this incentivized oil purchasers to hold U.S. dollars, thus creating the "Petrodollar System".


The Dollar’s status was further brought into question in recent years, as the Fed’s dovish monetary policy resulted in a surge of dollar notes entering circulation, or rather the vaults of various foreign entities. Primary central banks responded to the Fed’s actions and sought to weaken their own currency, in order to preserve their local industries competitive exporting edge. Most notable among these were the ECB and Bank of Japan. 

In 2008, at the beginning of the financial crisis, the People’s Bank of China chose to peg its currency, the Renminbi, to the dollar at a fixed rate. The Renminbi strengthened from 6.83 CNY to the USD in June 2010, to around 6.21 nowadays. Additionally, China increased the amounts of gold at its vaults in recent years, paving to road to speculation that the Renminbi could someday replace the dollar as the world’s primary reserve currency. Many of the worlds' central banks either already shifted portion of their reserves from USD to CNY, or are planning to do so. Nigeria and South Korea are two examples.

Many of China's recent deals to purchase energy, including the giant natural gas deal signed last month with Russia, are rumored to be denominated in CNY and not in USD, effectively circumventing Petrodollar. However, it is hard to imagine the Renmibi taking the crown as the world's top reserve currency without China further opening its capital market. A global interest in Renmibi could lead to its appreciation, which would work against Chinese exporters. That means that gaining the status of a reserve currency, which was very lucrative in the past, seems nowadays more as a honey trap. 

Join Anyoption and take advantage of the volatility of the markets ..Start Trading TODAY!

Brittle safe havens

Recent weeks' strengthening of the USD against the EUR, alongside the decrease of U.S. yields, has strengthened the dollar's status as the world's financial safe haven. While gold and other precious metals have always seemed to retain their value, the same had only applied to few selected currencies. Today we will review some of the process of consolidating monetary systems, and place the dollar's status in context. 

Currency is often defined as any physical mean that is used as a medium of exchange. Historically, many currencies existed only within a local scope, but the rise of global trade necessitated a medium of exchange that would be generally accepted and would be able to maintain its value. In the ancient world, precious metals were the obvious choice, mostly being conveniently minted to “standard” weights. These weights became synonymous with their value as currency. The ambiguity between the money and the commodity it was made of led to defining it as "commodity money". Two such examples of commodity money were the Chinese Tael and Greek Drachma. 

Join Anyoption and take advantage of the volatility of the markets ..Start Trading TODAY!

Weekly Market Review: Euro continues to weaken against the Dollar

The volatile trading between the Euro and the U.S. dollar, due to speculation of monetary measures enacted by the ECB, morphed into rather muted trading early last week. It started with the Euro being left battered and bruised from Draghi’s dispersion of dovish remarks, and trading at 1.375 Dollar to the Euro, a level unseen since the beginning of April. The weakening of the Euro was re-ignited on Tuesday, as an article on the Wall Street Journal stated that the German Bundesbank would be willing to back the European Central Bank in "an array of stimulus measures". The idea that the Bundesbank, often considered hawkish-oriented in its advocated monetary policy, could support more dovish policy, helped further weaken the Euro - sending it to trade 50 pips lower versus the Dollar, at a level of 1.371. Wednesday saw the publishing of numerous April European Consumer Price Indices. However, many of those were final estimations of previously announced preliminary figures. Knowing this, investors needed something rather extraordinary in order to shake the markets. Another dosage of the usual muted inflation wouldn’t suffice to send the Euro trading lower versus the Dollar. Evidently, “the usual” was somewhat of understatement to what followed. It started the Germany CPI’s final estimation confirming the preliminary figure at a muted but tolerable 1.1% annual increase, continued with the French CPI presenting 0.7% annual inflation at slightly below analyst expectations of 0.9%, and even saw Spain confirming a positive 0.4% annual inflation print. With nothing out of the ordinary to shake things up, the Euro gained 10 pips against the dollar.

Start Trading NOW!!


Up to a certain point

Market participants saw the Euro slide further versus major currencies on Thursday, fueled by European Central Bank Vice President Vitor Constancio promising the bank would act "swiftly" if needed to battle the low level of inflation prevailing in the Euro Zone. The rest of the day saw the U.S. Initial Jobless Claims published to indicate that only 297K claims have been submitted during the previous week. Aside from breaking the 300K Initial Claims limit, this is also the first time since May 2007 that such a small number of claims were submitted. Interestingly, the effect on the markets was limited, mostly due to the Fed's efforts to make the labor market less cardinal in determining future policy measures. The soon-to-follow release of April’s U.S. Industrial Production decrease by 0.6% Month over Month, versus analyst expectations for a 0.7% increase had a stronger impact on markets sending EUR/USD trading as high as 1.373. Like most rollercoaster rides, this one ended with the EUR/USD at the 1.371 level in which it started. In conclusion, we see that the ECB's promises of more Dovish measures continued translating to a weaker Euro. However, this only held up to a certain point. With the ECB’s June 5th announcement, showdown is nearing, and no central bank possesses the privilege to fold. Start Trading NOW!!

On both sides of the Atlantic

Register at ANYOPTION and start trading TODAY!

Wednesday sported an opportunity for U.S. data to shake the markets. Initially, the ADP employment change was released, and presented a very impressive increase of 215,000 jobs in the U.S. economy during November. When the promising data started advocating the tapering of QE3, it also sent the USD to strengthen nearly 0.5% versus the EUR. However, the day did not stop there, as the ISM Non-Manufacturing Composite Index was released shortly after, with less appeasing results. The negative 53.9 figure dispersed some of the QE3 tapering concerns, weakening the USD back to the 1.36 levels versus the EUR, where it started at. Equity reiterated their example for the “Bad news is good for stocks” paradigm, as the S&P500 gained approximately 0.7%.

Thursday saw a rather expected decision by the Bank of England to keep the official bank rate at 0.5%. The day’s protagonist, on the other hand, is probably the Department of Labor’s Initial Jobless Claims report, which indicated only 298,000 Initial Claims were submitted during the previous week. The last time this occurred was September and the figure has since surged to as high as 737,000, due to the Government’s shutdown. However, it seems that optimism regarding the labor data was already priced in the markets, as a result of the previous day’s positive ADP figure. Evidently, markets saw little change following the print.

Friday was somewhat of a different story. The day started with very positive indications regarding the U.S. labor market. These included U.S. Nonfarm Payrolls adding 203,000 Jobs in November, and perhaps more importantly U.S. Unemployment dropping to a level of 7.0%. Stock derivatives’ immediate response was to lose about 0.5%. Taper-induced trading was also evident in gold which took quite a blow and of course the USD which strengthened by almost 0.3% versus the EUR. Interestingly, things did not stop there - when the official trading started market opening was on average a tad higher than the previous day’s close. However, soon after that euphoria spread around equity markets, which lead both the Dow and S&P 500 to close their trading days more than a percentage point higher than the previous day’s close. 

Register at ANYOPTION and start trading TODAY!