- The American dollar index can be seen in the midst of the ongoing conflict between Israel and Iran.
- The Federal Reserve announced that it will maintain the policy rate without changes in the range of 4.25% –4.50% in June.
- The president of the FED, Powell, said that inflation could increase in the coming months.
The dollar index (DXY), which measures the value of the US dollar (USD) compared to six main currencies, is extending its profits for third consecutive session and is quoted higher, around 99.10 during Thursday’s Asian hours. The dollar continues to gain ground after the decision of the Federal Reserve (FED) to maintain the policy rate without changes in the range of 4.25% –4.50% at its June meeting on Wednesday, as expected widely. The Federal Open Market Committee (FOMC) still foresees around 50 basic points of cuts in interest rates until the end of 2025.
The president of the FED, Jerome Powell, said, at a press conference after the meeting, that inflation remains something above the goal and could increase in the future, citing the impact of the tariffs of US President Donald Trump. Powell supported the current policy position that leaves the central bank well positioned. He warned that the continuous political uncertainty will keep the Fed in a position to keep the fees, and any rate cut will depend on an additional improvement in labor and inflationary data.
The US dollar also receives support from a greater demand for safe refuge amid tensions in the Middle East. Bloomberg, citing unidentified sources, reported that “US officials prepare for a possible attack by Iran in the next few days.” “US plans for any attack on Iran continue to evolve.” In addition, the Wall Street Journal, referring to individuals familiar with the discussions, declared that President Trump said Tuesday night that he approved the attack plans to Iran, but kept them waiting to see if Tehán would leave his nuclear program.
President Trump criticized Iran for “having made a mistake,” responding to the statement of Supreme Leader Ayatollah Ali Khamenei that “the Iranian nation will not surrender” and warned about “irreparable damage” if the United States (USA) joins directly to the conflict between Israel and Iran.
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.
