- The US dollar index weakens about 98.70 during the early Asian session on Tuesday.
- The weakest US employment data and the renewed concerns about the independence of the Fed weigh on the DXY.
- The US ISM Services PMI report will be the culminating point 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, trades negative around 98.70 during the early Asian session on Tuesday. Operators expect the publication of the PRIVENTE MANAGERS INDEX (PMI) of US ISM Services Later on Tuesday to obtain a new impulse.
The US Non -Agricultural Payroll (NFP) increased by 73,000 in July, compared to an increase of 14,000 (reviewed since 147,000) previously, according to the US Labor Statistics Office (BLS) on Friday. This reading was below the 110,000 market consensus. Meanwhile, the US unemployment rate rose to 4.2% in July from 4.1% in June, as expected. The USM manufacturing PMI of the USA.
Fed Fed Future Operators increased fees for rates cuts again on Friday after the US disappointing economic data, which created a wind against the US dollar. The markets are now valuing almost 84% possibility that the Fed cuts rates at 25 basic points (PB) at the September meeting, due to the US employment data weaker than expected, according to the Fedwatch of the CME, with just under 60 pb of expected reductions for December, which implies two cuts of 25 bp and a probability of 40% of a third of a third.
Late on Monday, the president of the Fed of San Francisco, Mary C. Daly, said that, given the growing evidence that the US labor market is weakening and the lack of signs of persistent inflation driven by tariffs, the time is approaching for interest rates reductions.
In addition, the renewed concern about the independence of the Fed contributes to the decline of the USD. The Fed announced Friday that Adriana D. Kugler, a member of its governors’ Junta, will resign in advance amid continuous tensions with the president of the Fed, Jerome Powell.
Looking ahead, the operators will keep an eye on the ISM services PMI of the US ISM. Later on Tuesday. ISM Services PMI is expected to improve 51.5 in July from 50.8 in the previous reading. If the report shows a stronger result than expected, this could boost the US dollar against its rivals 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.
