2024 Dollar Exchange Rate Investment Guide | Analysis of Currency Strengths and Weaknesses

In the global financial markets, the role of the US dollar goes beyond being just a currency. It serves as the standard for international trade settlements and accounts for the largest share in the foreign exchange reserves of central banks worldwide. This status stems from the size of the US economy and its political stability, and it is expected to continue in the future.

The reason investors focus on the dollar is clear. It allows for the simultaneous achievement of multiple investment goals such as asset protection, currency arbitrage, and portfolio stabilization. While it was once primarily the domain of professional investors, now individual investors can participate in dollar investments with appropriate strategies.

Why Invest in the Dollar

Stability and Reliability

During global financial crises, the dollar has shown a tendency to maintain its value. Investors have chosen the dollar as a safe asset during shocks like the 2008 financial crisis and the 2020 pandemic. This is due to the stable policy stance of the US Federal Reserve( and the country’s status as the world’s largest economy.

) Liquidity Advantage

The dollar is the most actively traded currency, with over 6 trillion USD exchanged daily. This high liquidity means investors can buy and sell freely at any desired time. Especially in short-term trading, quick entry and exit are possible, minimizing transaction costs.

Diversity of Investment Instruments

Dollar investment options are highly diverse. From foreign currency deposits in banks to futures, CFDs, and margin trading, there are plenty of products to choose from based on risk levels and capital size.

Key Factors Moving the Dollar Exchange Rate

Federal Reserve Interest Rate Decisions

When interest rates rise, foreign capital floods into US bonds and dollar assets, increasing demand for the dollar. Conversely, signals of rate cuts put downward pressure on the dollar. Since 2015, the Fed’s rate hike cycle has driven dollar strength, while recent discussions of rate freezes have dampened expectations for the dollar.

Money Supply Control

Quantitative easing policies by central banks increase the money supply, leading to a decline in the value of the dollar, the reserve currency. Conversely, tightening policies restrict dollar supply and support its value.

Geopolitical Events and Risk Factors

Conflicts in the Middle East, US-China trade tensions, and political instability in Europe can trigger risk-averse sentiment among investors, causing short-term surges in dollar demand. During the US-China trade dispute in 2018, USD/CNY rose from 6.3 to 7.1, and during heightened Middle East tensions, USD/JPY sharply dropped from 115 to 125 yen.

Relative Strength Comparison Among Global Currencies

Changes in interest rate policies of major currencies like the euro, yen, and British pound directly impact the dollar exchange rate. For example, when the European Central Bank### raises rates, the euro tends to strengthen against the dollar.

Major Turning Points in Exchange Rate Fluctuations Over the Last 30 Years

( 2008 Financial Crisis and Flight to Safe Assets

USD/EUR rose over 25%, from 0.62 to 0.80 euros. Just before the collapse of the global economy, the dollar was the only refuge.

) Dollar Dominance Deepening Since 2015

As the Fed began raising rates, USD/JPY surpassed 120 yen, and USD/EUR strengthened to around 0.95.

Dollar Strength in Early Pandemic and Subsequent Weakening

In early 2020, due to economic uncertainty, the dollar initially strengthened, but large-scale US stimulus and rate cuts caused USD/EUR to fluctuate between 0.95 and 1.05 euros.

Energy Crisis and Middle East Tensions

Rising oil prices and geopolitical tensions caused significant volatility in USD/JPY, and resource-exporting currencies### CAD, AUD### weakened against the dollar.

Exchange Rate Scenarios for 2024-2025

( Expected Movements of the Korean Won

Strong export performance and growth in the semiconductor sector are expected to drive the won’s appreciation. Experts forecast KRW/USD to trade within 1,350~1,400 won, indicating the won’s strength against the dollar.

) Trends of the Japanese Yen

With the Bank of Japan’s continued easing stance, the yen is likely to remain weak. USD/JPY could rise to around 140~145 yen in the second half of 2024. However, if efforts to defend the yen’s value intensify, this outlook may change.

Euro’s Competitiveness

Depending on the ECB’s interest rate policies and Europe’s economic recovery pace, USD/EUR is expected to range between 1.05 and 1.10 euros. Volatility may increase due to changes in Europe’s energy policies and trade environment.

Comparison of Dollar Investment Methods

Bank Foreign Currency Deposits

Advantages: The simplest and safest method. Easy for beginners to access.

Disadvantages: Currency exchange fees, low interest yields, risk of exchange losses if the exchange rate falls.

Suitable for: Conservative investors holding dollars long-term.

Forex Margin Trading

Advantages: Large trading volume with small capital, opportunities for short-term profits.

Disadvantages: High risk, potential for significant losses during market volatility, amplified losses due to leverage.

Suitable for: Experienced investors who understand market volatility.

Major Platforms: MetaTrader 4, cTrader, etc.

Futures Trading

Advantages: Ability to lock in future prices, useful for hedging exchange rate risks.

Disadvantages: Funds are locked until contract expiry, complex contract terms, high entry barriers.

Suitable for: Exporters/importers, institutional investors, those needing long-term risk hedging.

Major Platforms: NinjaTrader, TradeStation, etc.

Forex CFDs

Advantages: Leverage use, ability to trade both long and short, flexible strategies.

Disadvantages: High risk of losses, potential for severe losses during market crashes, requires complex market understanding.

Suitable for: Skilled short-term traders.

Major Platforms: MetaTrader 4, IG, Plus500, etc.

Establishing a Successful Dollar Investment Strategy

Portfolio Diversification

Invest in multiple currencies such as euro, yen, and emerging market currencies to limit losses from a sudden crash of a single currency. Also consider asset classes like bonds and stocks.

Monitoring Macroeconomic Indicators

Continuously track US employment data, GDP growth, inflation rates, and Fed policy statements to anticipate exchange rate movements. Using economic calendars to identify key release dates is essential.

Thorough Risk Management

Set limits on investment amounts and do not exceed them. For leveraged products like margin trading and CFDs, pre-set stop-loss orders and strictly adhere to them. Always keep 20~30% of assets in cash.

Differentiating Short-term Volatility and Long-term Trends

Avoid being swayed by daily or weekly short-term fluctuations; base investment decisions on 3 months to 1-year trend analysis to increase success rates.

Conclusion

The choice of dollar investment method depends on individual risk appetite, capital size, and investment horizon. The most notable aspect of the 2024~2025 exchange rate outlook is the potential for Fed rate cuts and the resulting dollar weakness.

Experts predict the following:

• USD/EUR: 1.05~1.10 euros ###Euro strength(
• USD/JPY: 140~145 yen )Yen weakness###
• KRW/USD: 1,350~1,400 won (Won strength)

To succeed in this environment, it is essential to analyze not only exchange rate movements but also macroeconomic policies, geopolitical risks, and changes in currency supply, adjusting your portfolio accordingly.

Dollar investment functions not only as a means of profit but also as a tool for asset protection against global economic changes. With systematic strategies and thorough risk management, stable returns can be pursued.