Strong assets in light of recent US dollar weakness

Key points

• Low interest rates increase USD supply, potentially devaluing the dollar against GBP and JPY
• Swiss Franc, Japanese Yen, and Norwegian Krone are relatively stable in high inflation environments
• Gold is produced at 1-2% annually, making it a reliable store of value against inflation
• Bitcoin's finite supply offers a hedge against currency debasement but comes with high volatility

Will USD devalue if interest rates return to 0%?

Theoretically, low interest rates increase the supply of US dollars, as borrowing costs are cheaper, which can lead to more dollars circulating in the economy. This increased supply can depreciate the value of the dollar relative to goods and services or other currencies like the British pound (GBP) and Japanese yen (JPY), especially if their interest rates remain unchanged or higher. This depreciation can drive inflation, as more dollars are needed to purchase the same amount of goods and services, and can also affect the exchange rate, making the US dollar weaker compared to other currencies. With last week’s significant rate cut decision by the US Federal Reserve, along with forecasts indicating further cuts through 2026, the immediate reaction was a sharp decline in the dollar's value, followed by a solid recovery as market participants adjusted their expectations and reassessed the economic outlook. The release of economic data, such as GDP growth, employment figures, and inflation rates, as well as broader global financial dynamics, will play critical roles in shaping the dollar's trajectory.

What currency is the safest in high inflation?

Typically, regions with high interest rates and steady economic growth have currencies that are best equipped to defend against high inflation; currencies, however, perform on a relative basis, so comparing interest rates and GDP growth rates are required to find potential outperformers. Historically speaking, the Swiss Franc, Japanese Yen and Norwegian Krone are considered relatively stable in high inflation environments due to their resilient economies and strong monetary policy. However, the performance of currencies is relative, necessitating a comparison of interest rates and GDP growth rates to identify potential outperformers.

Is gold a safer investment than US dollars?

Gold is produced at an average rate of 1-2% annually, while US dollars are printed at a more dynamic and often higher rate according to Federal Reserve policy; this makes gold a harder, rarer store of value in most economic times, which is why it is seen as a defense against inflation. The limited and predictable increase in the gold supply makes it a "hard" asset, meaning it retains value over long periods and cannot be easily devalued by overproduction. In most economic times, this scarcity makes gold a reliable store of value. Investors often turn to gold as a hedge against inflation because its value tends to remain stable or appreciate when inflation erodes the purchasing power of fiat currencies like the US dollar.

Can bitcoin help defend against currency debasement?

US dollars and most major currencies abandoned the gold standard decades ago, resulting in currency debasement and decreasing value relative to goods and services; since there is a finite amount of bitcoin, it can help defend against this issue; however, cryptocurrencies like BTC are highly volatile and deemed risky assets by analysts and investors alike. While bitcoin can be an effective part of a diversified strategy to protect against the potential devaluation of the dollar, it should be approached with caution and balanced with other investments.

How to trade US dollar

1. Open an account to get started, or practice on a demo account
2. Choose your forex trading platform
3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.