2024 US Dollar Investment Methods | Global Exchange Rate Fluctuations and Asset Allocation Strategies

Current Position and Investment Value of the US Dollar

In the international financial markets, the US dollar functions beyond being just a currency; it serves as the key global reserve currency for payments. The combined effects of the US’s economic size, political stability, and international influence have positioned the dollar at the center of global financial transactions and international trade.

From novice investors to institutional investors, the primary reason for choosing dollar investments is clear. It allows asset value preservation even amid economic uncertainty and enables risk diversification through portfolio diversification. Dollar investment is no longer an exclusive domain of experts; anyone can develop strategies aligned with their goals and participate.

Three Core Values of Dollar Investment

1. Function as a Solid Asset

Rated as one of the most stable currencies worldwide, the US dollar maintains relatively high value even during global financial crises. The stability of the US financial system and its international creditworthiness form the foundation of this trust. During market turmoil, investors seeking safe assets have always turned to the dollar as a primary option.

2. Superior Liquidity

The dollar is the most traded currency globally, offering the advantage of quick buy and sell at any time when needed. This high liquidity reduces transaction costs and facilitates market entry and exit, making it especially advantageous for short-term trading strategies.

3. Various Dollar Investment Methods

A wide range of financial products are available to match investors’ risk preferences and investment scales, from bank spot currency exchange to foreign exchange margin trading, futures, and CFDs. Each method has different profit structures and risk levels, allowing individuals to choose based on their investment tendencies.

Major Factors Influencing Exchange Rate Fluctuations

Impact of Interest Rate Policies

The US Federal Reserve(Fed)'s interest rate hikes increase demand for dollar assets among foreign investors. Capital seeking higher yields flows into the US markets, causing the dollar to appreciate. Conversely, during rate cuts, dollar demand decreases, often leading to a weakening trend.

Management of Money Supply

Quantitative easing(QE) or tightening policies by the Federal Reserve directly control the dollar supply in the market. When the central bank buys bonds and injects liquidity, the increased dollar supply can lead to a decline in currency value.

US Economic and Political Influence

US economic growth, political stability, and military strength determine global confidence in the dollar. The dollar’s status as a primary settlement currency in international trade continuously generates demand.

Relative Position to Major International Currencies

Policy changes in other reserve currencies like the euro and yen directly impact the dollar exchange rate. For example, the European Central Bank(ECB)'s interest rate hikes can strengthen the euro, exerting downward pressure on the dollar.

Exchange Rate Trends from 2008 to Present

Rise of the Dollar Post-2008 Financial Crisis

The 2008 global financial crisis drastically shifted investor sentiment. Amid fears, asset flight occurred, and the dollar experienced a surge in demand as a safe haven. As a result, USD/EUR soared over 25%, from 0.62 euros to around 0.80 euros, reaffirming the dollar’s reserve currency status.

Structural Changes Since 2015

With the start of the Fed’s interest rate hike cycle, the dollar entered a new bullish phase. USD/JPY broke through 120 yen, and USD/EUR rose to about 0.95 euros, continuing its upward trend. This reflected the market’s view that the US economy was recovering faster than other developed nations.

Trade Policy Variables and Yuan Weakness

The intensification of US-China trade disputes from 2018 hit the yuan hard. Increased tariffs and trade restrictions led to uncertainty, resulting in yuan depreciation, with USD/CNY rising from 6.3 to 7.1 yuan, showing sharp volatility.

Post-Pandemic Volatility

Early pandemic economic uncertainty caused the dollar to strengthen again. Subsequently, large-scale US stimulus measures and Fed rate cuts led to significant fluctuations, with exchange rates swinging between 0.90 and 1.05 euros.

Middle Eastern Geopolitical Risks and Energy Uncertainty

Tensions related to Iran and oil supply disruptions triggered safe-haven flows. USD/JPY surged from 115 yen to 125 yen, while currencies of oil-exporting countries like CAD and AUD weakened, moving from 1.25 to 1.30 and from 1.38 to 1.44 respectively.

Dollar Exchange Rate Scenarios and Investment Directions in 2024

Bullish Dollar Trend in First Half of 2024

Despite no Fed rate hikes in the past six months, the dollar remains strong. This indicates continued preference for US assets among international capital. However, concerns about recession are growing, raising the possibility of rate cuts.

Outlook for Major Currency Pairs in 2024

KRW/USD Outlook

Korean semiconductor and electronics exports are expected to support won strength. If US interest rate policies remain stable, the won is projected to trade between 1,350 and 1,400 won.

Potential Rise of USD/JPY

The Bank of Japan’s monetary policy remains accommodative, likely leading to continued yen weakness. Experts predominantly forecast USD/JPY rising to 140-145 yen in the second half of 2024. However, if Japan moves to raise interest rates, this outlook may adjust.

EUR/USD Volatility Range

The euro’s movement will largely depend on the ECB’s policy stance and Europe’s economic recovery pace. Experts predict EUR/USD will fluctuate between 1.05 and 1.10 euros in the second half of 2024. Accelerated European recovery could strengthen the euro further.

Characteristics and Selection Criteria for Different Dollar Investment Methods

Bank Exchange: Basic Method for Beginners

Holding dollars in cash or foreign currency deposits is the most traditional approach. It requires no complex financial knowledge and suits investors seeking long-term holding. However, it involves exchange fees and the risk of exchange rate decline leading to currency losses.

Forex Margin Trading: Aggressive Strategy Using Leverage

Allows large trades with small capital and aims for significant gains from short-term exchange rate movements. Supported by platforms like MetaTrader 4 and cTrader. However, market volatility can cause losses exceeding initial investments, so it is recommended for experienced investors only.

Forex Futures: Risk Management Tool for Institutions

Trading dollars at predetermined future prices, with CME Group’s dollar index futures(DXY) being the most actively traded. It allows locking in exchange rate risk, used by large import/export companies. Can be traded on platforms like NinjaTrader and TradeStation.

CFD Trading: Flexible Position Management

Enables two-way trading through price fluctuations and efficient capital use via leverage. Accessible via platforms like MetaTrader 4, IG, Plus500, Mitrade. However, high market volatility entails significant risk of loss, suitable for skilled traders.

Key Strategies for Successful Dollar Investment

Asset Allocation for Risk Diversification

Properly distributing dollars and other currencies or assets within a portfolio minimizes the impact of specific currency fluctuations. This is a core principle for protecting assets from market volatility.

Monitoring Economic Indicators and Policy Changes

Indicators such as Fed interest rate policies, US employment data, and GDP growth serve as leading signals for the dollar exchange rate. Continuous tracking and analysis enable timely investment decisions.

Systematic Risk Management

Setting clear investment limits and trading only within prescribed bounds during volatile markets is essential. For leveraged trading, pre-setting stop-loss levels is particularly important.

Conclusion: The Path of Dollar Investment in 2024

The US dollar investment environment in 2024 and 2025 will be heavily influenced by Fed interest rate decisions, global economic growth, and geopolitical factors. Current expert scenarios suggest a high likelihood of interest rate stabilization or cuts. In such cases, the euro and yen are expected to remain strong at 1.05-1.10 euros and 140-145 yen respectively, while the won may strengthen to between 1,250 and 1,300 won.

When choosing dollar investment methods, it is crucial to consider your investment experience, risk tolerance, and profit goals among the various options described above. The ability to swiftly grasp economic changes and adjust strategies accordingly will be the most important factor for successful dollar investing.