Forex is the largest financial market in the world. Unlike a stock, a currency has no intrinsic value — its price reflects a relative comparison between two economies and two monetary policies.
A currency whose central bank maintains higher rates attracts yield-seeking flows — carry trade. This strategy carries a major risk: a sharp unwind during volatility shocks, amplifying FX moves.
The DXY measures the dollar against a basket of major currencies. Beyond its national role, the dollar serves as the world's reserve currency and a safe haven — a sharply rising DXY often reflects a flight to quality.
The Japanese yen and Swiss franc also play a safe-haven role, for different reasons — Japan's net creditor position, Switzerland's long-standing political stability.
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