- The US dollar index falls to 98.30 in the early European session on Monday, lowering 0.92% in the day.
- Trump will press Tariff Exemption applicants to limit trade with China.
- Powell of the Fed indicated that the tariffs justify the caution of the Fed for now.
The US dollar index (DXY), an index of the value of the US dollar (USD) measured against a basket of six world currencies, falls to about 98.30, the lowest level since March 2022. Increased uncertainty around the tariff They undermine USD on all fronts.
On April 2, Trump proposed “reciprocal tariffs” to dozens of nations. While his administration paused the encumbrances for some countries, Trump climbed his commercial war with China. Beijing has warned its commercial partners about succumbing to the US pressure to restrict trade with China in exchange for an exemption from Trump’s “reciprocal” tariffs.
In a week, Trump’s tariffs on Chinese goods increased from 54% to 104% and now to 125%, adding to the previous tax taxes before Trump’s second mandate. China has responded by increasing additional tariffs over all US imports to 84%. Any sign of increased commercial tension between the two largest economies in the world could drag the dollar down.
On the other hand, the hard line comments of the US Federal Reserve (Fed) could limit the fall of the DXY. The president of the Fed, Jerome Powell, said last week that the increase in tariffs could feed inflation while undermining growth, complicating the way for decisions about interest rates. Powell said: “At the moment, we are well positioned to expect greater clarity before considering any adjustment to our policy position.”
Meanwhile, the president of the Fed of San Francisco, Mary Daly, said Friday that, although she still feels comfortable with a couple of interest rates reductions this year, the growing risks of inflation mean that the Fed may need to do less, especially given the uncertainty about Trump’s commercial policy.
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.
