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What is implied when one speaks of Currency Strength?

  • September 2014
  • Posted By Ninoslav

Well, according to economists and people who follow Foreign Exchange Market regularly, Currency Strength may be put simply as the value a currency holds globally. Economists over the world primarily associate this tem with the purchasing power of currencies. But financial trader tends to think of it in a wholly different way.

To them, it is an indication of many factors that can be related to currencies, like the overall economic performance its parent country has shown. Assessing the strength of money properly helps them in trading better with certain pairs of currencies. And this strength is calculated by comparing the worth of two or more currencies.

How is it put into use in trading?
The ideology which Forex traders follow is simple – buy money that is strong and sell those ones which are weak. And to gauge this strength, various indexes are put into use. You may have heard of the US Dollar Index? It compares the value of a currency against the US dollar, as it is one of those stronger ones.

There are a whole lot of indexes which use one of the major currencies as reference. Reason for this being is almost nine-tenth of Forex Markets globally is represented by these Majors. So, when measuring Currency Strength, one will mainly find that currencies are compared to the likes of US Dollars, Euro, Japanese Yen, etc. Based on such comparisons, one opts for that pair which is likely to fetch maximum amounts when selling.

That was all that could be mentioned in brief about Currency Strength and its importance. But there are many things that can be related to this term. To know one such thing, read upon “What does Dollarization mean when used with regards to money”.


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