2024 Dollar Investment Complete Guide | Exchange Rate Fluctuation Analysis and Effective Investment Strategies

The Position of the Dollar in Global Finance

In the modern international economic system, the US dollar maintains its status beyond being just a currency; it is the world’s reserve currency. The size of the US economy, political stability, and international influence have established this position, which is also why dollar investments have become an essential component of investors’ portfolios worldwide.

The appeal of dollar investments is not limited to stability. They serve as a means to generate profits through exchange rate fluctuations, diversify assets, and protect wealth amid economic uncertainties—all at the same time. Today, dollar investing has moved beyond the realm of financial professionals and is accessible to individual investors as well.

Reasons Why Dollar Investment Is Gaining Attention

The Value of Stability

Every time there is a global financial crisis, investors flock to the dollar for a clear reason. The trust in the US financial system and the size of its economy help preserve the dollar’s value even amid market turmoil. During the 2008 financial crisis, USD/EUR rose from 0.62 to around 0.80, exemplifying the dollar’s status as a safe asset.

The Advantage of Trading Liquidity

The dollar is the most traded currency in the world. Its high liquidity allows investors to buy and sell at desired times, reducing transaction costs and enabling quick entry and exit. This is especially crucial for short-term trading, significantly impacting profitability.

Various Approaches

Dollar investment methods range from bank currency exchange to futures and CFDs. Investors can choose approaches that match their risk appetite and capital size, which plays a significant role in lowering entry barriers.

Key Factors Moving Exchange Rates

US Interest Rate Policies

Interest rates are the most direct influence on the dollar’s value. When rates rise, foreign capital seeking higher yields flows into the US, increasing demand for the dollar. Conversely, during rate cuts, the dollar’s attractiveness tends to decline. Since 2015, the Federal Reserve’s rate hikes have sustained a strong dollar. At that time, USD/JPY exceeded 120 yen, and USD/EUR rose to around 0.95.

Adjustment of Dollar Supply

Quantitative easing policies by central banks cause a surge in dollar supply. The basic economic principle that more dollars in circulation lead to a decrease in value applies here. The large-scale economic stimulus in the US at the onset of COVID-19 in 2020 contributed to dollar weakness.

US Political, Economic, and Military Influence

The US’s political stability, economic growth, and military dominance continually reinforce the dollar’s role as the global trade settlement currency. This creates a structural demand for the dollar.

Fluctuations of Competing Currencies

Strengthening of major currencies like the euro and yen makes the dollar relatively weaker. Decisions by the European Central Bank to raise interest rates or changes in Japanese monetary policy are immediately reflected in dollar exchange rates.

Exchange Rate Movements Over the Past 5 Years

2018-2019: Trade Tensions and Rapid Exchange Rate Fluctuations

The US-China trade dispute disrupted global supply chains. During this period, the yuan weakened against the dollar, with USD/CNY rising from 6.3 to 7.1. This period clearly demonstrated how geopolitical risks impact exchange rates.

2020: Pandemic and the Dual Role of the Dollar

Amid global economic uncertainty early in COVID-19, the dollar strengthened as a safe asset. However, as the US began aggressive rate cuts and economic stimulus, the dollar weakened again. USD/EUR fluctuated between 0.81 and 1.05.

2021-2023: Energy Crisis and Middle Eastern Geopolitical Risks

Geopolitical instability in the Middle East raised concerns over oil supply, leading to increased demand for safe-haven assets like the yen and Canadian dollar. USD/JPY surged from 115 to 125 yen, and USD/EUR moved from 0.88 to 0.95.

First Half of 2024: Continued Strong Dollar and Changing Rate Outlook

Even though the Federal Reserve did not raise interest rates in the first half of this year, dollar demand remained high. However, signals of economic slowdown have emerged, raising the possibility of rate cuts in the second half. If inflation pressures ease and economic growth weakens, the Fed is likely to lower rates to support the economy.

Outlook for the Dollar Exchange Rate in 2024: Major Currency Scenarios

KRW/USD: Expectation of Korean Won Appreciation

As Korea’s semiconductor and electronics exports perform well, the won is expected to remain relatively strong. Experts forecast KRW/USD to move between 1,350 and 1,400 won. Particularly, if the US keeps interest rates steady, the won’s strength could further increase.

USD/JPY: Potential Continued Yen Weakness

Despite the Bank of Japan’s interest rate hikes, if the easing monetary policy persists, the yen may continue to weaken. In the second half of 2024, USD/JPY could rise to around 140-145 yen. Volatility may increase depending on Japanese policy shifts.

EUR/USD: Possible Rebound of Euro Strength

If the European Central Bank continues raising interest rates and the European economy recovers, the euro could strengthen. In the second half of 2024, EUR/USD might trade between 1.05 and 1.10. Changes in Europe’s energy and trade policies could also increase volatility.

Comparative Analysis of Practical Methods for Dollar Investment

Bank Currency Exchange: The Beginner’s First Choice

Buying dollars directly at a bank is the easiest and safest approach. It allows long-term asset holding without complex financial products. However, considerations include exchange fees, timing difficulties in choosing favorable rates, and the risk of exchange losses if rates fall. Using online banking enhances convenience.

Forex Margin Trading: The Choice of Experienced Investors

This method is attractive because it allows trading with small capital for large positions. Profits can be generated from short-term exchange rate movements. However, it is high-risk; rapid market fluctuations can cause losses exceeding initial capital. Platforms like MetaTrader 4 or cTrader are used, but it is not recommended for inexperienced investors unfamiliar with market dynamics.

Forex Futures: Hedging Tool for Companies and Institutions

Futures involve trading dollars at a predetermined price at a specific future date. The CME Group’s dollar index futures(DXY) are widely used by large import/export companies to manage exchange rate risks. Futures contracts tie up funds until expiration and have contractual constraints, making them suitable for companies or institutional investors managing long-term exchange rate risks. Main trading platforms include NinjaTrader and TradeStation.

CFD( Contracts for Difference): Flexible Short-term Trading Tool

Profits are possible from price fluctuations, and leverage allows large trades with small capital. Various strategies can be applied to respond flexibly to market volatility. However, higher volatility increases the risk of losses. Sudden market events can cause rapid price swings, potentially exceeding initial investments. This method is recommended only for experienced traders and is traded on platforms like MetaTrader 4, IG, Plus500, Mitrade.

Strategic Framework for Successful Dollar Investment

The Importance of Portfolio Diversification

Investing across multiple currencies and assets minimizes the impact of fluctuations in any single currency. Proper allocation among the dollar, euro, yen, won, and others can significantly reduce exchange rate risks.

Monitoring Economic Indicators and Forecasting Exchange Rates

Constantly observe US interest rate policies, employment data, GDP growth, and other indicators. These directly influence the dollar exchange rate. Detecting changes early is key to generating profits.

Systematic Risk Management

All investments carry the risk of loss. Set investment limits in advance, maintain appropriate cash ratios, and carefully manage leverage in high-risk investments like forex margin trading.

2024 Dollar Investment Outlook

The environment for dollar investing in 2024-2025 will be heavily influenced by the Federal Reserve’s interest rate policies, global economic growth, and geopolitical risks. Currently, experts assess a high likelihood of interest rate stabilization or cuts. In such scenarios, the euro and yen are expected to remain strong at around 1.05-1.10 and 140-145 yen respectively. Meanwhile, the won may decline to 1,250-1,300 won due to robust exports.

Successful dollar investing requires more than just betting on exchange rate movements. It is essential to monitor economic changes, understand policy directions of different countries, and adjust strategies flexibly. Remember, dollar investments can serve not only for short-term gains but also as vital tools for long-term asset protection.