- The American dollar index is quoted in positive territory for the third consecutive day around 98.10 in the first bars of the European session on Monday.
- Trump’s latest tariff threats drive the US dollar against their rivals.
- The June US IPC inflation report will be the Center for Care later on Tuesday.
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, attracts some buyers to a maximum of three weeks at 98.10 during the European session on Monday. The renewed commercial tensions triggered by US President Donald Trump weigh on the feeling of risk, raising the US dollar.
Trump threatened Saturday with imposing a 30% tariff on imports of two of the largest business partners in the US, the European Union (EU) and Mexico, as of August 1. The German Chancellor Friedrich Merz said that he will work in close collaboration with the French president Emmanuel Macron and von der Leyen in the coming weeks to resolve the growing commercial dispute with the US. Meanwhile, the growing commercial tensions between the US and the EU could boost the safe refuge flows, supporting the DXY in the short term.
Chicago Fed President Austan Goolsbee said during the weekend that the new tariffs announced by Trump have further complicated the perspective of inflation, making it difficult to support the feat cuts that the president has requested. Operators reduce their bets on a feat cut of the US Federal Reserve (FED), discounting just over 50 basic points (PB) of flexibility for December. The cautious posture of the US Central Bank could limit the dxy bullish potential.
The operators will take more clues of the US consumer price index (CPI) data for June, which will be published later on Tuesday. This report could offer some clues about the future path of interest rates in the USA. Economists expect inflation in the US to have slightly increased last month. However, any softer inflation signal could push the expectations for reducing Fed rates, undermining the US dollar in the short term.
US Dollar – Frequently Questions
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.
