The forex value of the euro strengthens while the US dollar weakens mainly because of the improving economic situation in the United States. According to the latest figures, there are good prospects for faster economic recovery in the US. For instance, the February figures on consumer spending significantly increased to 0.7% from the forecasted 0.5%. On the other hand, many sceptical market analysts have pointed out that the main bulk of this rise can be attributed to the ballooning costs of wholesale energy. It should be recalled that energy cost is a significant chunk of household expense in the US.

Despite of the criticism about the recent consumer spending figures, investors reacted positively about the news but the stronger consumer spending figure also resulted in the weakening of the US dollar in the foreign exchange market. One does not need to become a forex trader to understand the inverse correlation between US equity market sentiments and the value of the greenback.

Meanwhile, the performance of the real estate property sector in the US also exceeded the forecasts. The pending home sales data for the month of February showed an increase of 2.1%. Many market analysts and investors were actually expecting zero growth in the housing sector. Most of them were pleasantly surprised by the sector’s performance.

Global investors are anticipating the busy trading session today in the US market. Various important US economic data will also be released today and will provide hints for market participants about the best investment strategies. Another important economic data due for release today is the US consumer confidence survey report. The overall optimism and appetite for risky assets are likely to improve further if the consumer confidence level overshoots the expectations.

On the domestic front, today will also be a hectic day for the release of various economic figures here in the United Kingdom. Among those that were already released earlier was the official and finalised GDP figures for the fourth quarter of 2010. Another important report will be the highly-monitored mortgage approval statistics for the month of February. Investors and analysts are expecting that the latest data would show that 46,500 new mortgages were granted approval last month. If the high figure is repeated this month, it could result to the housing sector’s significant contribution in the overall economic recovery.

Meanwhile, the situation in the eurozone may seem to be deterioration but the recent statements of the European Central Bank president may lead to the forex rebound of the euro. According to ECB President Jean Claude Trichet, the bank is likely to raise the base interest rates by next week. If Germany’s consumer price index inflation figure goes up further beyond expectations, the ECB will be forced to raise the interest rates.

The recent nose dives of global stock markets were primarily triggered by the uncertainties brought about by the catastrophe in Japan and the spreading unrests in the Middle East. Meanwhile, the forex market also became a bit more volatile in the past few days. Traders saw the considerable dips and surge of several major currencies in response to the latest developments in Asia and in the Middle East.

Based on the latest trends in the foreign exchange market, the British sterling has recently been gaining grounds after it was subjected under sell-off pressures. The pound recently rallied against a basket of other major currencies, such as the Australian dollar, the New Zealand dollar and the greenback.

The global forex market and the equity markets are continually being exposed to trading uncertainties as the Japanese nuclear crisis seems to become worse. Desperate measures are being done to almost no avail. The fuel rods of the various earthquake-damaged nuclear reactors continue to overheat and may deteriorate into full-blown meltdowns. Some of the nuclear waste storage facilities in Fukushima are also feared to be leaking dangerous levels of radiations.’

Major currencies, especially the safe-haven currencies, are likely to be affected by the unfolding developments in Japan. As the level of risk aversion in the market increases, the demand for safe-haven assets also increases. Many investors will try to protect their wealth by dumping high-risked holdings and then buying safe-haven assets such as gold, dollar and yen.

The recent massive sell-offs in the equity markets have resulted in the migration of funds to assets that are considered as hedge against market volatility. Being a safe-haven asset, the yen has dramatically gained grounds over other major currencies. The repatriation of funds from Japanese companies abroad also contributed in the rally of the yen. The yen reached its highest level against the US dollar since World War II. Nonetheless, the forex rally of the yen is not good news for the export-dependent economy of Japan. A strong yen would mean less competitive edge for the Japanese export sector.

In an attempt to stabilise the yen, the Japanese central bank resorted to quantitative easing programme. The Bank of Japan injected a total of JPY34trillion or equal to more than $430 billion into the system to provide greater market liquidity. The Bank of Japan purchased various assets, including government bonds in an effort to regain the trust of investors.

Those who intend to make money through the forex market may be prompted to sell their yen-related assets as the value of the yen falls. This will contribute to the further levelling-off of the yen back to more stable and favourable levels. In the long run, the equity market in Japan may again follow bullish trends.

Many economists agree that China is likely to become the successor of the United States as the strongest economic superpower in the world. Along with the emerging ascendancy of Chinese economy is the strengthening of the forex position of the yuan. Some even speculate that the Chinese currency may soon replace the US dollar as a strong international currency commonly used as a standard reserve and safe-haven asset.

There are several indicators that the US dollar is losing its status as a safe-haven asset. The recent credit downgrading of Greece, for instance, has again sent chills in the financial markets. Many investors are again beginning to worry that the possibility of defaulting on sovereign debts could spread in the eurozone. The fear of financial collapse in the eurozone would have immediately led to the weakening of the euro in the forex market. The US dollar, on the other hand, would have already rallied against the euro as investors took flight from potentially volatile investments.

Despite of the renewed market worries about the eurozone, the foreign exchange value of the euro remains strong against the dollar. The recent credit rating downgrade of Greece also has not prompted investors to take refuge in the safe-haven of the dollar and other dollar-backed assets.

It seems that at least in the near-term the prestige of the US currency has deteriorated as can be gleamed by the reactions of investors amid the sovereign debt issues in Europe and the ongoing political uncertainties in the Middle East.

People are wondering about the prospects of the US dollar. Those who desire to make money through the forex market may find it a bit unprofitable to buy US currency as it continues to decline. With the exception of spread-betting, the US dollar does not seem to be an attractive currency right now.

On the other hand, the weakness of the US dollar can be attributed to some ‘transitory’ factors such as the volatility of crude oil prices. Since the US dollar is being used as the invoicing currency for the international trade of oil, high oil prices would result in the depreciation of the dollar and vice-versa. The flight to ‘safe-haven’ assets has not helped the dollar simply because investors have considered the overdependence of the US economy on fossil fuel.

The so-called currency war might have already ended as many emerging economies have already given up the race to bottom as high inflation takes a foothold. Manipulating or intentionally devaluing currencies would have given competitive advantage for the nations involved but this competitive edge is not sustainable. Nations are risking domestic instability in favour of export competitiveness.

Of course, the forex weakness of the US dollar can also be attributed to the loose monetary policies of the Federal Reserve, which include the quantitative easing program and the very low interest rates. By over-flooding the markets with greater dollar liquidity, the purchasing power of the greenback was weakened in the process. If this trend continues, it will not be good for the US economy and the global economy in general simply because US dollar is considered as a global currency. Most countries have dollar reserves instead of gold reserves to back-up their economies.

On a long-term basis, the US dollar is still seen as the most stable currency and safe haven asset. There are still no competitors that can immediately topple the greenback.

However, it should be pointed out that nothing in this world last forever. Two major currencies have the potential of replacing the US dollar in the long run as a global reserve currency. The first one is the euro and the second one is the Chinese yuan or renminbi. These currencies may be considered as serious contenders but they still have a lot of hurdles that need to be overcome. The euro, for instance, is a regional currency that is technically a state-less currency. This means that the euro is on a shaky ground considering the diversity of the eurozone. Not unless, the eurozone becomes a United State of Europe, the euro will not have a strong guarantor in the forex market and global trade in general.

On the other hand, the other hand, the Chinese yuan is backed by a very strong state that has almost complete control on the foreign exchange value of the said currency. A non-free-floating currency is not ideal for reserve and international trading purposes.

Even if the euro and the yuan overcome their respective disadvantages, the US dollar will not easily lose its ascendancy. Some analysts speculate that there might be a future wherein there will be three ‘reserve’ currencies. This is far better than simply having just one international reserve currency because the values of these currencies are likely to become very stable and harder to manipulate.