- The American dollar index gains impulse about 99.25 in the early European session on Tuesday, adding 0.22% in the day.
- The hope of advances in commercial conversations between the US and China signs it to the US dollar.
- The operators will take more clues of the inflation data of the US CPI of May, which will be published later on Wednesday.
The US dollar index (DXY), an index of the value of the US dollar (USD) measured against a basket of six world currencies, bounces around 99.25 during the early European session on Tuesday in the midst of a feeling of improved risk. Investors will closely monitor the result of commercial conversations between the United States (USA) and China, which will be held later on Tuesday in London.
Commercial conversations between the US and China began in London on Monday and settled that they would continue on Tuesday. The Trump administration indicated that it would eliminate restrictions on some technological exports in exchange for guarantees that China is relaxing the limits on rare earth shipments, which are criticism for a wide range of energy, defense and technology products.
The US Treasury Secretary, Scott Besent, described Monday’s discussions as a “good meeting.” The optimism about the relaxation of commercial tensions between the US and China mitigates concerns about economic slowdown in the two largest economies in the world, supporting the US dollar.
The inflation data of the US Consumer Price Index (CPI) for May will be the Center for Care on Wednesday. The report could offer some clues about the impact of tariffs and interest rates. The general CPI is expected to see an increase of 2.5% year -on -year in May, while the underlying CPI is estimated to register an interannual 2.9% increase in the same period. If the report shows a softer inflation result than expected, this could drag USD down in general.
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.
