Money Makes The World Go 'Round!

Money Makes The World Go 'Round!

Long-term currency charts show how the dollar is in play around the world

When market reports talk about the value of the dollar, they usually refer to dollar indexes. These typically take a bushel basket of currencies and weight them according to the value of trade a country has with the U.S. The most often referenced index is traded as a futures contract.

But within that overall index, the dollar can show different movements against individual currencies.

DOLLAR IN PLAY: The U.S. dollar is constantly changing value, long term charts show why.

Traders sometimes use these relationships as proxies for a country’s economy. During the boom days of emerging markets a few years ago, the Brazilian Real strengthened against the dollar. Higher interest rates in Brazil drove investors to the currency, which hurt Brazilian farmers, who are paid in dollars but buy inputs in their local currency.

Actions of central banks also play a role. During the bull market in commodities, low interest rates convinced traders to borrow in Yen, using proceeds to buy crude oil, oil and other hard assets. Some traders just put on a spread for this carry trade, selling yen and buying the commodity. More recently the Bank of Japan announced a massive program of financial easing, trying to stimulate inflation. That also weakened the Yen against the dollar.

On charts of the currency, however, the Yen seemed to rise. That’s another consideration when looking at these currency pairs. Most charts show the value of the currency per U.S. dollar. The more Yen a dollar is worth, the weaker the Yen is. So, a rising trend on a chart actually shows the value of the Yen weakening.

A few currencies are expressed in opposite terms. These include the British Pound and the Euro. They’re expressed as the dollars per the currency, so a higher value shows the dollar weakening.

Check out these charts back to the year 2000 for key international currencies.

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