The Decline of the Dollar and the impact of rising Political Tension

In recent times, the U.S. dollar has enjoyed a huge resurgence in the financial marketplace. This has been largely driven by the fluctuating fortunes of the Euro and the Yen, which have plummeted against a backdrop of economic decline and reforms.

This trend has finally reversed, however, with the greenback suffering broad losses after previously peaking at an eight-month high against a host of major international currencies. Recent geopolitical tensions have contributed heavily to this, and the dollar may even fall further amid widespread, international tumult.

Why the Dollar falls during times of Political strife

The primary reason for this is outlook of investors and how this changes during times of political tension. Traders initially look to cut long positions in a depreciating market, for example, making the dollar far less profitable or appealing to the majority investors. In addition to those, conservative investors have traditionally turned to the yen during times of aversion, with this currency recently hitting an impressive two-week high of 122.26 in the market.

The same can be said for the Euro, which has also gained a third of a percent over the course of the last two weeks and edged to $1.0676 while climbing from a seven-month low of $1.0592. The growth was compounded by a dollar index decline of 0.2%, and while this is expected to be a temporary fall it underlines how traders amend their outlook as the economic climate fluctuates. We can expect this trend to continue for an indefinite period of time, however, especially given growing tensions in the East of Europe.

The final Word: How long will it take for the Dollar to recover?

Both the Yen and the Euro are considered as carry funding currencies in the current marketplace, which means that investors are likely to borrow low-yield currencies in a bid to sell it and buy a higher-performing alternative once the market improves. This is a common risk aversion strategy in the modern age, especially as high-yield and Western currencies such as the Dollar are often associated with high levels of risk and threat.

Ultimately, there is no doubt that the U.S. dollar will rebound from its current decline, especially with positive data sets expected to be released in final financial quarter. It is simply a matter of time before the market begins to ascend once more, and much will depend on the capacity of leading international governments to manage oversea relations. With this in mind, as an investor you will need to monitor live and real-time market trends as they unfold, so be sure to check the latest forex developments.

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