Why the USD suddently rise? Will it continue to rise? What causes it to rise?

Question

Why the USD suddently rise? Will it continue to rise? What causes it to rise?

Answer 1

Generally central banks react to bad economic situations by lowering interest rates which lowers the value of the currency -- since people are making less interest on their balances, they shift to another currency where they can make more interest.

The Federal Reserve has already done a lot of rate lowering and it is anticipated that they will not be able to lower rates further. The European Central Bank has not followed suit and has kept rates high. A few weeks ago the chairman of the European Central bank held interest rates steady and gave some hints that they will have to start on a program of interest rate lowering in the near future.  At the time there was some hope among Euro investors that Europe would avoid most of the Anglo-American problems and that rates may even increase a little.  This spawned a Euro sell off.

Answer 2

It isn't possible to accurately predict with any consistency if the US$ will rise or fall--that's why they call it currency "speculation."

The reason it fluctuates, however, is both complex and really quite simple:

The dollar rises when investors (individuals, hedge funds, foreign governments, etc.) BUY dollars.  And it falls when they SELL them.  Buying them means that they are willing to take on our debt, in the form of bond issues from the Federal Reserve--a private entity, by the way--where new money is created from nothing.  It comes right out of thin air.  Now, this newly created debt is bought by, oh, say China.  They're buying it because they have faith that the American taxpayer will eventually be able to pay back the debt, with interest, before the bond matures.  That confidence makes the dollar stronger when measured against other benchmark currencies like the euro, etc.  

When confidence is low, investors start selling dollars because they want to convert to a more stable currency.  When we run these huge budget deficits and borrow more and more money, it makes us look weaker financially, just like you would if you started maxing out all your credit cards to pay for everything but couldn't show any real income.  Because of this, the buying power of the dollar is diluted, reducing it's value.  Over the long term, the overall trend is definitively downward because what is really happening here constitutes inflation.  All inflation is, is a hidden tax that you can't see because they keep telling you the cost of goods and services is rising when in fact, the prices are the same and have been for over 100 years.  It is the PURCHASING POWER of your dollars that have been reduced by the excessive borrowing.  Therefore, when the dollar is down, you need more to make up for the difference.

Answer 3

I don't think it rose as much as everyone else started falling as a result of our weak economy.

Answer 4

When a currency declines  exports increase and imports decrease improving the trade balance so it has a partial recovery. See theory of the j shaped curve.

http://en.wikipedia.org/wiki/J_curve