After a recent round of rate hikes by the US Federal Reserve Bank, the nation’s dollar has reached highs on various indices that demonstrate the strongest greenback in the past 20 years. For individual and institutional currency traders around the globe, the question is can a strong dollar hold out through a choppy, problem-ridden year? In three subsequent meetings, Fed officials hiked the benchmark interest rate two full points, a record amount. The results were not completely as expected. The domestic currency rose against most other major FX partners, but there has not yet been a corresponding decline in growth or inflation.

Credit: Frank Busch

Several other developed economies, particularly the European Union, are expected to raise their interest rates to fall in line with the actions of the US Fed. If that happens, there’s a good chance that the USD won’t be able to hold its historic highs and could fall throughout 2022. Meanwhile, Russia’s CBR (Central Bank of Russia) has been taking a proactive posture with regard to propping up the ruble. Putin’s finance ministers recently announced a more lenient policy for foreign currency conversion for exporters, which has been part of the impetus behind a USD/RUB rate of 63, the Russian Federation’s best showing in more than two years.

Considering the ongoing war with Ukraine, it’s surprising that the ruble is able to post any positive movements at all, much less historical ones. Forex investors are taking note of all the war developments and the ministry’s continuing efforts to solidify the currency. Any hint of weakness could set off an anti-ruble rally in international markets that are imposing harsh economic sanctions against Russia for having invaded Ukraine in February.

Economic news out of the US and Russia has spurred forex trading as home-based financial workers take advantage of an unusually volatile and shifting global monetary market. As the war in Ukraine rages and both the US and European Union engage in an interest rate battle, retail level FX trading practitioners play the back and forth values in dollars, euros, rubles, and dozens of other currencies. One reason for the upswing in interest among FX enthusiasts is the structure of foreign exchange buying and selling.

Unlike traditional equities markets in which participants take ownership of corporate shares and commodities, currency buyers and sellers don’t rely on improvement in asset values to earn profits. Instead, they try to find differences in values of currency pairs, speculating that one side of the transaction with either rise or fall against the other. Major online brokers offer new members an mt5 demo account to hone order entry and other essential skills before going live with their own capital in real-time transactions.

The latest inflation numbers out of the US government are worse than expected, currently sitting at 8.5 percent and expected to rise throughout the second quarter of 2022. One reason the Fed raised benchmark interest rates was to pull down a largely supply-side inflationary spiral. In past years, such moves have worked to stifle transitory inflation and halt growth at the same time.

The other big question mark in Q2 for the US economy, and one that is of keen interest to forex devotees, is the upcoming election season. Both houses of the US government are up for grabs, and there are heavy bets that the Democrats will lose control of the House and lose at least two seats in the Senate. If that happens, the administration would be mostly hamstrung in implementing further economic policies. The Federal Reserve Bank could then become the prime mover of the nation’s economy.

In light of the dollar’s improving but uneven performance, global financial leaders are looking at Asia and keeping a close eye on the continuing struggles of China’s government to stave off a massive economic meltdown. In Japan, near-zero interest rates set by the national bank have kept growth weak and there’s no sign of near-term improvement in the strength of the yen. China’s difficulties are especially perplexing for world leaders, many of whose nations rely on the Asian manufacturing giant for huge amounts of raw materials and finished retail products.

The nation’s ambitious Belt and Road development program is essentially on hold as officials negotiate the end of city-wide lockdowns in Shanghai and elsewhere to stave the spread of COVID-like viruses. Looking to the final two quarters of 2022, there is a strong possibility that the global volatility and economic turbulence will continue, regardless of whether the Ukraine and Russia war ends at some point.

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