The US Dollar (USD)

The United States is the world's leading economic power. Its Gross Domestic Product (GDP) is valued at more than $12 trillion, which is the highest in the world.

The US is a service-oriented country, with 80 percent of the GDP coming from services. Manufacturing accounts for 12 percent of the US economy.

Exports

Export markets are very important to the value of the USD. The stability of its export markets directly affects the value of and demand for the USD. A strong Dollar will reduce the number of exports. A weak Dollar will boost exports.

The US has five major export markets:

• Canada
• Mexico
• Japan
• China
• United Kingdom

Imports

A strong Dollar will boost imports because it makes foreign goods cheaper to USD holders. A weak Dollar will reduce imports.

The US has five major import sources:

• European Union
• Canada
• China
• Mexico
• Japan

The central bank in the United States if the Federal Reserve Bank, which is also called "the Fed."

The Fed establishes and implements monetary policy through the Federal Open Market Committee (FOMC). The FOMC meets eight times every year. These meetings are very closely watched around the world. Following the meetings, the FOMC will make announcements about interest rates or changes in growth expectations.

The Fed issues a bianual report called the Monetary Policy Report. It is released in July and February. This report will discuss the forecast for growth, inflation, and unemployment.

The following characteristics are important for traders to know about the USD as they affect the demand for the Dollar:

• 90 percent of all currency deals use the USD.
• Emerging markets link their currency to the USD.
• The USD is very sensitive to the movement of the US stock and bond markets. When the stock market is up, the USD is strong. When bond yields are up, the USD is strong.
• The USD moves in the opposite direction of gold prices.
• The USD is also called the Greenback.
• The US Dollar index (USDX) is a strong gauge of Dollar strength.

Important economic indicators that directly affect the value of the US Dollar are (in order of importance):

• Nonfarm Payrolls
• Consumer Price Index (CPI) and Producer Price Index (PPI)
• ISM Manufacturing Survey
• Gross Domestic Product
• International Trade

Currency traders should watch for these reports because they directly affect the demand for the USD. Mark your calendars because many the level of volatility tends to rise in anticipation of their release. Expect large price movements and lots of surprises.