- The US dollar accelerated its reversal from the maximum of last week to levels close to 0.8100 after the high fire between Iran and Israel.
- The moderate comments of the FED, Bowman and Waller officials have added pressure on the USD.
The president of the Fed, Powell, is expected to talk to Congress later today and give more clues about the bank’s next steps.
The Swiss Franco has recovered most of the losses of the last two weeks, and the USD/CHF has returned to levels just above 0.8100, with the dollar pressed by the feeling of risk after the announcement of a truce in the Middle East and the moderate rhetoric of the Fed officials.
Trump promoted the feeling of investors late Monday, minimizing Iran’s attack on an American military base in Qatar and announcing a high “complete and total” fire. The subsequent risk rally has hit the American dollar harder than the CHF, another safe refuge, which is also fighting today.
Also on Monday, the Vice President of Supervision of the Federal Reserve, Michelle Bowman, joined her colleague Waller and asked for a rate cut in the coming months. Bowman said that the impact of Trump’s tariffs on inflation is likely to be less than what was previously thought, and that the bank should make its monetary policy moreland to support job creation.
These comments have increased interest in President Powell’s testimony to Congress. Investors will be looking for signs of fissure in their recent hard line rhetoric, which would increase the hopes of a rate cut, probably more in September than in July, and increase the pressure on the US dollar.
Fed Faqs
The monetary policy of the United States is directed by the Federal Reserve (FED). The Fed has two mandates: to achieve prices stability and promote full employment. Its main tool to achieve these objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the objective of 2% set by the Federal Reserve, it rises interest rates, increasing the costs of loans throughout the economy. This translates into a strengthening of the US dollar (USD), since it makes the United States a more attractive place for international investors to place their money. When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to foster indebtedness, which weighs on the green ticket.
The Federal Reserve (FED) celebrates eight meetings per year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation and makes monetary policy decisions. The FOMC is made up of twelve officials of the Federal Reserve: the seven members of the Council of Governors, the president of the Bank of the Federal Reserve of New York and four of the eleven presidents of the regional banks of the Reserve, who exercise their positions for a year in a rotary form.
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non -standard policy measure used during crises or when inflation is extremely low. It was the weapon chosen by the Fed during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy high quality bonds of financial institutions. The one usually weakens the US dollar.
The quantitative hardening (QT) is the inverse process to the QE, for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the bonds that it has in portfolio that they expire, to buy new bonds. It is usually positive for the value of 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.
