The year that has ended has been a horrible year for many currencies. The global star, the US dollar, has lost value against many currencies, especially after the murky presidential elections. However, she was not the only one to suffer the effects of the economic crisis caused by the pandemic.
We must ask ourselves: what determines the value of a currency? Balance between the amount of this currency and the amount of goods or services that can be purchased with it, i.e. the so-called purchasing power parity model. If the amount of money in circulation increases, allowing people to buy the same type of goods or services multiple times, their value will increase, causing inflation. On the contrary, if the amount of money is constant, but the production of goods and the supply of services continue to grow, people start to value money more, leading to a general fall in prices (deflation) and of consumption.
Second question: who decides how much money is in circulation? Monetary policy is one of the “weapons” used by countries to stimulate their economies. As a result, central banks, such as the FED (United States), the ECB (European Union), or the BOJ (Japan), determine the amount of currency issued and the interest rate at which they lend money. .
For example, an expansionary monetary policy (more supply) leads, in theory, to a fall in the value of this currency. Therefore, it is necessary to make the right combination with the interest rate, so that in the event of a fall and the growth of the economy is high, there is no increase in prices (inflation). Thus, indicators such as inflation, unemployment and gross domestic product are implicit in the capacity to demand, thus influencing the value of money.
Of course, in a global world, this value is also driven by external factors (exports, foreign investments, tourism) and demand at the international level. There are also countries that, as a rule, set their exchange rate to other hard currencies, such as the US dollar or the euro. In a very simplistic way, this means that the central bank of these countries buys and sells its own currency in exchange for the currency at which it has set the parity. But the fixed exchange rate regime is an exception.
Investment for adventurers
The little introduction we have just given to the world of currencies allows us to conclude that the reasons for fluctuations in the value of currencies are not so complex, but the variables to be analyzed are numerous. Moreover, it is a market that operates 24/7. Thus, it is not enough to understand the possible implications of a rise in the interest rate and to master a set of data (current and futures) on a country. You should always keep your eyes open because it is possible to trade currencies anytime and anywhere in the world.
The best strategies
Within the volatility associated with this type of investment, there are several ways to do it with greater or lesser risk. One of them is forex, an international market that allows the buying and selling of currencies. In the past, it was limited to financial entities. Today it is an open market not only for any investor, but for traders and brokers, who sometimes take advantage of different regulations between countries.
Getting started is very easy. Just follow these steps:
Register with a reliable broker such as Click here
Open a live chart for binary options.
Familiarize yourself with a simple and successful strategy.
Another solution for investing in currencies is investment funds, either via treasury funds (we do not recommend it) or via medium-term bonds, given our outlook for the currency against the euro. In fact, we have some of these bond funds in our portfolio with the more defensive strategy.
The advantage of investing through a fund is that you diversify into multiple currencies and have someone manage the investment for you.
In the midst of this currency trading adventure, the question arises as to which currencies are worth betting on. Forecasting is not easy.
In our forecast, there is a positive outlook for the Swedish Krona, Japanese Yen, Norwegian Krone, Canadian Dollar, Brazilian Real, Swiss Franc and British Pound.