Invest in the dollars (USD): what is the best time to buy dollars?

Investing in the US dollar (USD) can be interesting. The exchange rate of the dollar constantly fluctuates in relation to the euro and other currencies. In this article, we discuss how to invest by buying dollars and we also examine when you can best buy dollars.

Where to invest in the dollar?

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Investing in the dollar: Forex trading

If you want to invest in the dollar, you engage in Forex trading. The abbreviation ‘Forex’ stands for Foreign Exchange and refers to the trade in foreign currencies.

You always exchange another currency for the dollar. This can be the euro, for example, but also another currency. When you sell euros to buy dollars, you are trading in the currency pair EUR/USD.

Your results are as follows:

  • When the dollar becomes more valuable than the euro, you make money.
  • When the dollar becomes less valuable than the euro, you lose money.

How to invest in the dollar?

Way 1: buy dollars

If you have a lot of confidence in the dollar, you can simply choose to buy dollars. You can then hold the dollar for a longer period in the hope of making a profit from the exchange rate.

Way 2: active speculation

The Forex market also attracts many speculators. Speculators try to actively react to fluctuations in the exchange rate. When you speculate, you can use leverage: this can increase your potential profit. At the same time, with active speculation, you can of course also lose a lot of money.

When you actively trade, you engage in day trading. Do you want to learn how to day-trade yourself? Read this article!

Way 3: investing in America

You can also indirectly invest in the dollar by investing in America. You can do this by, for example:

When you sell these investments, you sell them for dollars. If the dollar has become more valuable, you make a profit.

Keep in mind that the investment results of the specific securities also influence the result. If the dollar increases in value by 10%, but the stock decreases by 30%, you still achieve a negative result.

When to buy dollars?

When you start investing in the dollar, it’s important to determine when to buy dollars. Similar to when trading stocks, when trading in dollars, you mainly look at demand and supply. The price of the dollar is therefore mainly assessed based on macroeconomic figures.

A good example of this are statements and decisions made by the US president. These can have a strong influence on the price of the dollar. Many of Trump’s statements, for example, lead to a weakened position for America on the economic world stage. This weakened the dollar against the euro.

When you invest in the US dollar, you are actually investing in America as an economic zone. When confidence in America increases, the price of the currency generally increases. You can read more details about the exchange rate here.
Investing in the dollar

Currency pairs with the US dollar

When you invest in the dollar, you always trade another currency for the dollar.

There are many currency pairs. If you want to trade in the US dollar, there are several pairs where you can invest your money. Some examples are:

  • EUR/USD (with the euro)
  • USD/JPY (with the Japanese yen)
  • GBP/USD (with the British pound)
  • AUD/USD (with the Australian dollar)
  • USD/CAD (with the Canadian dollar)
  • USD/CHF (with the Swiss franc)

Before you speculate in the dollar, you determine which currency pair you want to trade with. If you would like to predict the value of the dollar compared to the value of the euro, then you choose the EUR/USD pair. If you prefer to speculate on the Japanese yen, you can invest in the USD/JPY currency pair.

What are the advantages of investing in the dollar?

  • Large and liquid market: the dollar market is the most liquid market in the world, which allows you to sell your position quickly.
  • Diversification: diversification reduces the risk of your investment portfolio. By also investing in the dollar, you increase the diversification of your investments.
  • Opening hours: unlike stock markets, the currency market is open 24 hours a day, 7 days a week.
  • Relatively low costs: due to the large size of the currency market, the costs are reasonable.

What is the outlook for the dollar in 2024?

The future is difficult to predict, and this certainly applies to the exchange rate of the dollar.

At the beginning of 2023, the dollar is much stronger than the euro. This is because the eurozone is very unstable. Due to the war in Ukraine, there is a lot of uncertainty, which puts pressure on the exchange rate. Only when confidence in the eurozone increases can the euro regain value compared to the dollar.

This situation is likely to continue in 2024.

Hedging your dollar risk

When you invest in US stocks, you also take a large position in the US dollar. As a result, the results you achieve can be strongly related to the exchange rate development of the euro against the dollar.

Many investors want to invest in a selection of stocks and not directly in a currency. You can choose to hedge your risk. You then take an opposite position on the dollar, so that the exchange rate does not affect your investment results.

You can hedge the position yourself by selling dollars for your own currency. This is also called shorting. If you invest using ETFs, this can be even easier. There are ETFs that automatically protect you against exchange rate fluctuations.

Tip: Practice with a demo

Investing in the dollar may sound easy, but it can be very difficult. Click here to open a free demo account with a Forex broker of your choice & practice before you start with real money!

Try trading risk free?

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