- The American dollar index weakens around 97.15 in the first Asian session on Thursday.
- Besent said it is likely to announce a new nominee to President of the Fed in December or January.
- Investors expect commercial conversations between the US and China next week.
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, extends the fall to around 97.15, the lowest level since July 7, during the Asian negotiation hours on Thursday. The feeling of positive risk by the new US trade agreement was counteracted by political uncertainty about the future of Japanese Prime Minister Shigeru Ihiba.
Concerns about the independence of the Federal Reserve (FED) could weigh on the US dollar (USD) in the short term, since the US president, Donald Trump, has repeatedly criticized President Jerome Powell and urged him to resign due to the reluctance of the US Central Bank to cut the interest rates.
The US Treasury Secretary, Scott Besent, said Thursday that the announcement of a new nominated for the president of the Federal Reserve (Fed) is expected to occur in December or January next year. Besent said that “there is no hurry” to identify a successor for the president of the Fed, Powell, adding that a nominee could potentially come from the current members of the Board or the heads of the district banks.
Besent declared that he will meet with Chinese officials in Stockholm next week to discuss an extension of the deadline to negotiate a commercial agreement. Investors remain cautious about how tariff agreements will take place, since the term of August 1 still looms over many countries. Any sign of renewed commercial tensions could exert some sale pressure on the dollar.
The operators will focus on the preliminary reading of the US Purchase Management Index (PMI) for July, which will be published later on Thursday. The manufacturing PMI is expected to improve 52.5 in July from 52.0, while it is projected that the PMI of services rises to 53.0 in July compared to 52.9 above. In case of a stronger result than expected, this could help limit the losses of the USD. In addition, the initial applications for US unemployment subsidy, new housing sales and the National Fed Activity Index of Chicago will be published later on the same day.
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.
