- The US dollar index is negative in negative terrain around 97.25 in Friday’s Asian session.
- The perspective of Trump to announce to the next president of the FED weighs on the US dollar while the operators bet on rates cuts in the US.
- The US economy contracted faster than expected during the first three months of this year.
The US dollar index (DXY), an index of the value of the US dollar (USD) measured in front of a basket of six world currencies, remains defensive about 97.25, its lowest level in three and a half years during the Asian session on Wednesday.
The president of the USA, Donald Trump, was considering selecting the next president of the Federal Reserve (Fed) soon, feeding new bets on rates cuts in the USA Trump said he has a list of possible Powell successors reduced to “three or four people”, without appointing the finalists. Concerns about the future independence of the Fed could undermine the US dollar (USD) against their rivals.
“For now, the expectations that President Trump choose a more Dovish president will maintain the downward pressure on FOMC and USD prices,” said Carol Kong, foreign currency strollers in the Commonwealth Bank of Australia.
Meanwhile, the financial markets have valued the possibility of a rate cut at the next FED meeting in July in 25%, compared to 12% of a week ago, and have valued 64 basic points (PBS) of reductions by the end of the year, compared to around 46 PBS last week, according to Reuters.
The US gross domestic product (GDP) fell at an annual rate of 0.5% in the first quarter (Q1) of 2025, according to the US Economic Analysis Office (BEA) on Thursday. This reading was worse than the previous estimate and market expectation of -0.2%. Disappointing GDP data contributes to the weakness of the dollar.
The operators will be attentive to Friday’s publication of the data of the US Personal Consumption Expenditure Index (PCE) for May, the Fed.
US dollar FAQS
The US dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation along with local tickets. According to data from 2022, it is the most negotiated currency in the world, with more than 88% of all global currency change operations, which is equivalent to an average of 6.6 billion dollars in daily transactions. After World War II, the USD took over the pound sterling as a world reserve currency.
The most important individual factor that influences the value of the US dollar is monetary policy, which is determined by the Federal Reserve (FED). The Fed has two mandates: to achieve price stability (control inflation) and promote full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% objective set by the Fed, it rises the types, which favors the price of the dollar. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the dollar.
In extreme situations, the Federal Reserve can also print more dollars and promulgate quantitative flexibility (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is an unconventional policy measure that is used when the credit has been exhausted because banks do not lend each other (for fear of the default of the counterparts). It is the last resort when it is unlikely that a simple decrease in interest rates will achieve the necessary result. It was the weapon chosen by the Fed to combat the contraction of the credit that occurred during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy bonds of the US government, mainly of financial institutions. Which usually leads to a weakening of the US dollar.
The quantitative hardening (QT) is the reverse process for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the wallet values ​​that overcome in new purchases. It is usually positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
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