- The president of the Federal Reserve, Jerome Powell, testified to Congress, emphasizing the Fed Data Dependent approach.
- The high fire between Israel and Iran reduces the demand for shelter assets, contributing to a weaker US dollar.
- The US dollar index falls below 98.00 while tensions in the Middle East relieves, eclipsing Powell’s hard line comments.
The American dollar index (DXY) is quoting downward on Tuesday after the news of a high fire agreement between Israel and Iran, which has relieved the demand of the US dollar (USD). At the time of writing, the DXY is traded about 97.65, just above the minimum of June 97.61.
The president of the Federal Reserve (Fed), Jerome Powell, made hard line comments in his testimony to Congress, stating that the Fed “is in no hurry to cut rates.”
Although he reaffirmed his data dependent position, reducing the expectations of a rate cut in July, the markets were focused on the decrease in geopolitical tensions.
Market attention quickly moved to the high fire between Israel and Iran, which stimulated a feeling of risk and eclipsed concerns about monetary policy.
The High The Fire between Israel and Iran Eclipsa to the Hard Powell of the Fed
After an initial attempt to test the level of 100.00 on Monday, the index of the US dollar, which tracks the USD compared to six other coins, changed course as a combination of mixed signals on interest rates and geopolitical relief changed the tone.
The announcement of US President Donald Trump on a high fire between Israel and Iran generated optimism on Monday night, but both sides launched limited retaliation attacks in the following hours.
In spite of this, the markets interpreted the situation as largely contained, and the flows towards shelter shelter began to get rid of. On Tuesday, the fire was confirmed, which exerted more pressure on the index of the US dollar.
The change of approach to risk assets has reduced the short -term demand of the dollar, at least as long as geopolitical stability is maintained.
The dollar index falls below 98.00
The US dollar index is quoting below the psychological threshold of 98.00, with immediate resistance now formed at that level.
A sustained movement below 97.60 would expose the index to more losses towards the next psychological level of 97.00, a level that has not been tested since February 2022.
DAILY DOLL OF THE DOLLAR GRAPH
The relative force index (RSI) is approaching the territory of overalls, currently reading about 38.0, suggesting that short -term momentum may be stretched. Upwards, any recovery would need to overcome 98.00 and 98.40 to change the short -term inclination from neutral.
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.
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