U.S. economy dictates dollar strength.(Market Strategy)

Futures (Cedar Falls, Iowa), December, 2004 by Johnson, Earl

In early 2004, bearish dollar sentiment was prevalent. Yet, except for the first five weeks of trading, the greenback has traded comfortably above opening year levels. The value of any currency is determined by the strength of the economy supporting that currency, so it is not surprising that the dollar has recently exhibited resiliency given the dominant role the American economy plays in the global economy.

During 2004, shifting market expectations about the performance of the U.S. economy seem to explain fluctuations in the dollar and illustrate the role economic fundamentals play in determining exchange rates.

Foreign exchange rates are determined by supply and demand conditions in the global forex market, which has a daily volume in excess of...

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