- The US dollar index rises to about 97.55 in Friday’s Asian session.
- The US preliminary manufacturing PMI fell to 49.5 in July; The PMI of Services rose to 55.2 in the same period.
- Investors will be attentive to commercial conversations between the US and China and the FOMC policy meeting next week.
The American 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 positive territory for the second consecutive day around 97.55 during Friday’s Asian negotiation hours. Investors prepare for the requests for lasting goods in the US of June, which will be published later on Friday.
The dollar remains in positive terrain in the medium of mixed economic data of the US the data published by S&P Global on Thursday showed that the US preliminary manufacturing PMI fell to 49.5 in July from the previous reading of 52.0. This figure was weaker than the 52.5 market consensus. Meanwhile, the PMI of Services rose to 55.2 in July from 52.9 in June, stronger than the expected 53.0. Finally, the compound PMI improved 54.6 in July compared to 52.9 above.
The operators expect the policy meeting of the Federal Open Market Committee (FOMC) next week. The FOMC is expected to maintain the stable rate at its July meeting, since those responsible for the policy prefer to expect clarity on the expected impact of tariffs on inflation. Financial markets have discounted almost 60% possibility of a rate cut of 25 basic points (PBS) in September.
On Tuesday, US President Donald Trump announced a commercial agreement with Japan, which includes a 15% tariff on imported goods, while Japan will invest 550,000 million dollars in the US. Tariffs could return to 145% of the American side and 125% of the Chinese side in the absence of a commercial agreement or extension of discussions.
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.
