- The US dollar index moves little while operators adopt caution before the decision on Fed’s interest rates.
- Operators expect the FED to maintain interest rates without changes in their June meeting scheduled for Wednesday.
- The US retail sales fell 0.9% in May, exceeding the expectations of a 0.7% decrease.
The US dollar index (DXY), which measures the value of the US dollar (USD) compared to six main currencies, is going back to its recent profits and quoting around 98.70 during Wednesday’s Asian hours. The markets expect the US Federal Reserve (FED) to maintain the interest rate without changes in the June meeting scheduled for Wednesday. The operators now see a probability of almost 80% of a Fed fees cut in September, followed by another in October, according to Reuters.
The operators will probably follow the declaration of the Federal Open Market Committee (FOMC) on monetary policy, seeking future guidance amid the persistent tariff uncertainty and the increase in geopolitical tensions.
The dollar faces challenges due to US economic data weakest than expected published on Tuesday. Retail sales of the US fell 0.9% in May, worse than the expected decrease of 0.7% and the fall of April 0.1% (reviewed from +0.1%). Meanwhile, industrial production also decreased 0.2%, compared to the 0.1%increase, ranging from the previous growth of 0.1%.
The US dollar can recover land due to the increase in the demand for safe refuge amid the growing geopolitical tensions in the Middle East. Israel and Iran continue their reprisal cycle. However, Tehran has urged several countries, including Oman, Catar and Saudi Arabia, to urge the US president, Donald Trump, to declare a high immediate fire.
On Tuesday, the US president, Donald Trump, published on his social media platform, asking for the “unconditional surrender” of Iran. Investors are concerned that the United States participates in the Israel-Iran conflict.
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.
