- The USD begins the new week with a weaker tone and breaks a three -day streak.
- The bets that the Fed will soon resumed its cycle of rate cuts seem to weigh on the dollar.
- A positive risk tone also undermines the Usd of safe refuge and contributes to the fall.
The American dollar index (DXY), which follows the value of the dollar against a foreign exchange basket, struggles to capitalize on a three -day recovery from a minimum of several months and attract new sellers at the beginning of a new week. The index remains depressed during the first half of the European session and is currently below the 104.00 brand, falling around 0.20% in the day.
The least dovish perspective of the Federal Reserve (FED) maintained its prognosis of making two rate cuts of 25 basic points by the end of this year and raised its inflation projection. However, investors have been speculating that the US Central Bank will resume its cycle of rates cuts before expected, amid concerns about a deceleration of economic activity in the US promoted by tariffs. This, in turn, is considered to undermine the dollar.
Meanwhile, reports during the weekend indicated that US President Donald Trump is planning a closer and more specific agenda for the so -called reciprocal tariffs that will enter into force on April 2. This increases the appetite of investors for riskier assets and turns out to be another factor that affects the demand of the secure shelter dollar. That said, a good rebound in the yields of the US Treasury bonds could help limit any significant fall for the USD.
The operators now expect the publication of the US preliminary PMIS, which, together with the Speeches of FOMC members, could provide some impulse to the dollar. However, the attention will continue to focus on the US Personal Consumption Expenditure Index (PCE) on Friday, which could offer new clues about the FED fees clippage and determine the next directional movement for the dollar.
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.
