- The US dollar index remains stable around 98.15 in the first bars of the European session on Monday.
- The Fed is expected to keep stable the interest rates at your June meeting.
- High geopolitical tensions in the Middle East could boost the US dollar.
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, quotes in a flat tone about 98.15 during the early European session on Monday. Operators prefer to stay out of the day waiting for the decision on the Federal Reserve (Fed) interests of the USA on Wednesday. In addition, developments around geopolitical tensions in the Middle East will be observed closely.
Based on the latest US inflation data, the operators now see a possibility of almost 80% of a feature cut by the Fed in September, followed by another in October, according to Reuters. Operators will take more signs of the FOMC press conference. “If the FED delivers a Dovish maintenance as we hope, the dollar is likely to resume its weakening due to the deterioration of the fundamental background in the US,” said Win Thin, global market chief of market strategy at Brown Brothers Harriman.
The feeling of the consumer in the US improved for the first time in six months in June, since commercial tensions between the US and China softened. The feeling of the consumer of the University of Michigan rose to 60.5 in June from a final reading of 52.2 in May, exceeding the estimate of 53.5. The US optimistic data could raise the dollar in the short term.
The conflict between Israel and Iran has entered its fourth day, with both sides by launching new missiles during the night despite the so -called World Cups and the Discharge. Any sign of geopolitical tensions increasing and risks towards a broader regional conflict could boost safe refuge flows, benefiting USD.
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.
