Profiting From the Fall of the US Dollar

Its a fact that the US dollar is losing value against many benchmark currencies. Every week it seems that we are hearing that the greenback is falling to a new low against the Euro.

There is some bad news for the US dollar:

  • Trade deficit of US $765 bilion
  • Current account deficit of US $856 billion
  • Gross national debt of US $8.5 trillion

The Federal Reserve cut interest rates by half a percent on September 18, and this makes holding the US dollar less attractive to international investors, so that has reduced its value further.

Here’s a chart of the EUR/USD pair since January 2006:

To see shorter term charts, check out our Free Price Data page.

The upward slope of the curve shows that the value of the Euro is increasing relative to the US dollar. There is a similar story with other major currency pairs, such as the NZD/USD (New Zealand dollar), AUD/USD (Australian dollar), CAD/USD (Canadian dollar).

The Euro started as a currency in 1999. At that time, 87 US cents would buy one Euro. Now it takes $1.43 to buy a Euro. If oil prices continue to increase, or the Federal Reserve cuts interest rates again, the US dollar will fall further against other currencies.

Long term trends are where big money is made. How can you profit from the long term fall of the US dollar?

Well, there are several ways. You can buy EUR/USD through your forex broker. You can leverage your deposit up to 100 times, which gives you exposure to the trend. Generally, I would recommend that you use less leverage (that is, don’t use all the potential leverage) because you have to trade a long term trend. There are always short term up and downs. These can result in large fluctuations in the value of your account, even if you have the correct long term trend.

One other way is to buy ETFs (exchange traded funds) that are invested in stocks and assets in other countries with strong currencies. For example, you could look for one that invests in Europe, Australia or New Zealand.

Of course, you will need to make up your own mind on the direction of the US dollar – see your investment professional should you need any guidance.