- The US dollar index drops around 98.25 in the Asian session on Tuesday.
- Trump announced a high fire between Israel and Iran, which weighs on the US dollar.
- The governor of the Fed, Bowman, said Monday that he would favor an interest rate cut in the next policy meeting in July, provided that inflationary pressures are held contained.
The US dollar index (DXY), an index of the value of the US dollar (USD) measured in front of a basket of six world currencies, loses ground to about 98.25 after US President Donald Trump announced the high fire between Israel and Iran. Investors expect the semiannual testimonies of President Powell and the US consumer’s confidence report of June later on Tuesday to obtain a new impulse.
Trump said Monday that a high fire between Israel and Iran will enter into force to end the conflict between the two nations. White House officials affirmed that Israel accepted a high fire whenever they will not throw more attacks, while Iran has pointed out to the US that there will be no more attacks. The decrease in tension in the Middle East Socava the currency refuge as the US dollar (USD).
In addition, the dovish comments of those responsible for the Federal Reserve (FED) of the US contribute to the fall of the dollar. The Vice President of Supervision of the Fed, Michelle Bowman, said on Monday that the US Central Bank should consider trimming of interest rates soon, since the risks to the labor market could be increasing. Last week, the governor of the Fed, Christopher Waller, said the Fed is in a position to cut the policy rate as soon as in July.
On the other hand, the uncertainty around the high fire between Israel and Iran and any sign of renewed tensions could boost safe refuge flows, supporting the American dollar in the short term. Israel’s defense forces (IDF) said early Tuesday that they had identified missiles launched from Iran to southern Israel recently.
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.
