If If you’ve been following the news recently you might have heard that globally there is an economic recession underway due to COVID-19.
In uncertain times like these the US Dollar is still remaining considerably stable and in fact gaining in value. Why is that? How is that when strong currencies like the British Pound and Euro are dipping, the Dollar continues to thrive?
The answer to both these questions lies in a simple term that many will have already heard; USD is a safe haven currency.
Let’s dissect this statement.
Safe Haven: what does it mean?
As the name suggests, a safe haven is a trusted currency or commodity that is expected to keep its value, or increase in value even in times of extreme volatility.
When we hear that USD is a safe haven, it means that investors are taking refuge in this currency because situation with most of the other currencies is uncertain.
A safe haven, thus, limits a trader’s exposure to risk. During time of extreme market volatility investors seek to convert to secure a stable asset for other volatile ones.
It should also be stated here that USD isn’t the only safe haven under the sun. There are other safe havens too such as the swiss franc which tends to stay stable. Similarly Gold and certain crucial industry stocks are also included in the category.
Isn’t volatility helpful to the trader?
If one is a day trader and the volatility the market is offering is random then sure it can be helpful. More movement means there is more of a chance to make a profit.
However, that is not always the case. In times of economic recession like the ones we are living through right now due to the coronavirus, volatility usually means that assets are dwindling in their value. We already have witnessed a worst case scenario type of situation with WTI with its value touching the negative.