- The American dollar index gains land about 97.80 during Friday’s Asian session.
- Trump announced on Thursday a 35% tariff on Canadian imports, as of August 1.
- Initial unemployment requests in the US fell to 227K last week, a minimum of seven weeks.
The US dollar index (DXY), an index of the value of the US dollar (USD) measured against a basket of six world currencies, advances around 97.80 during Friday’s Asian negotiation hours after the US president, Donald Trump, announced new tariffs and said he plans to impose general tariffs of 15% or 20% to the remaining commercial partners.
On Thursday night, Trump announced a 35% tariff rate for the imported goods of Canada, which will begin on August 1. Trump said 35% tariffs will be separated from all sectoral tariffs, adding that rates could increase if Canada continues to retal.
Trump’s letter to Canada arrives after he delivered more than 20 letters to commercial partners this week alerting them on tariff rates that would apply to their exports on August 1, assuming that trade agreements are not reached. Trump said the European Union (EU) would receive a letter notifying them about the new tariff rates ‘today or tomorrow’.
“We simply say that all the remaining countries will pay, either 20% or 15%. We will solve it now,” Trump said.
Trump also announced on Wednesday plans for copper tariffs, semiconductors and pharmaceutical products, and imposed a 50% tariff rate to Brazil, one of the highest announced so far for tariffs, which will enter into force in August.
The persistent threat to inflation by tariffs could convince the US Federal Reserve (Fed) not to cut interest rates until next year. This, in turn, could provide some support to the dollar. The markets now expect rates reductions from the FED of 50 basic points (PBS) by the end of this year, starting in October.
Initial unemployment applications in the US for the week that ended on July 5 fell to 227K, compared to 233K in the previous week, the US Department of Labor revealed (DOL) on Thursday. This figure was lower than the 235K market consensus. This report suggests that employers may be retaining workers and showed that there is no urgency for the US Central Bank to resume its feat cuts, which the USD elevates.
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.
