- The USD index demonstrates a highly volatile action about 99.50 while the US House of Representatives approves Trump’s tax bill.
- The Trump tax cuts project is expected to accelerate the US fiscal crisis.
- Last week, Moody’s degraded the US credit rating to AA1.
The US dollar (USD) exhibits a volatile action during negotiation in North America on Thursday, with the US dollar index (DXY) showing wild movements about 99.50 after the US House of Representatives of the US approved the fiscal bill of President Donald Trump by a narrow margin and sent it to the Senate.
After obtaining the approval of the lower house of the Congress, the US president Trump declared that the “great and beautiful bill is the most significant legislation” and added that “it is time for friends in the US Senate to get to work.”
While the US president Trump has celebrated the approval of the so -called “Great and Beautiful bill” in the House of Representatives, the financial market participants are concerned that the bill, which includes tax cuts and expense plans, will exacerbate the fiscal deficit crisis. According to the Congress Budget Office, which is not partisan, the new Trump bill would increase US debt by 3.8 billion $ during the next decade, exacerbating interest obligations for the administration.
Last week, Moody’s also cited concerns about large tax imbalances and increasing interest costs and degraded US sovereign credit qualification at a level to AA1 from AAA.
In the Economic Front, investors expect the preliminary data of the purchasing managers index (PMI) of the US S&P global for May, which will be published at 13:45 GMT.
Meanwhile, initial unemployment applications for the week that ended on May 16 have been slightly lower than projected. People who requested unemployment benefits for the first time were registered in 227,000, slightly less than estimates of 230,000 and the previous publication of 229,000.
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.
