- Analytics
- News and Tools
- Market News
- US Dollar keeps head up high despite increasing headwinds
US Dollar keeps head up high despite increasing headwinds
- US Dollar price action was very choppy on Thursday after the US issued tariffs on tin imports.
- Traders have digested the hawkish Fed Minutes and are looking forward to Jackson Hole next week.
- The US Dollar Index consolidates near the monthly high and to close this week again in the green.
The US Dollar (USD) is proving to be resilient although a few market participants are trying to push the Greenback from its pedestal. Not only are the BRICS (Brazil-Russia-India-China-South Africa) countries holding a convention to circumvent their dependency from the US Dollar when exchanging commodities, but the Chinese People’s Bank of China (PBoC) has issued its strongest fixing in its existence for the Yuan against the US Dollar. The PBoC tries to stabilise the Yuan to squeeze out speculators against the Chinese currency.
A very calm Friday on the data front with no real market moving points. This will offer market participants the chance to start preparing for the volatile week ahead, with a lot of data out of Europe and the annual Jackson Hole Symposium as the cherry on the cake. Each year, all the smart minds and souls of biggest central banks over the world meet in Wyoming to debate about monetary policy. This event will bear quite a lot of headline risk as it is often the ideal moment for the US Federal Reserve (Fed) to announce either a change in monetary policy or issue a longer-term commitment on its policy adjustments.
Daily digest: US Dollar moves sideways
- The main focus today will be on headlines from the BRICS convention, where the main topic is de-dollarization.
- Another red day again in equity markets, with Asian equities on their back. The Japanese Topix is about to close this Friday with a 0.70% loss. The stronger Yuan fixing does not help the Hong Kong Exchange, which is down near 2%. Europe is in the red as well, though by less than 0.5%. US futures bear hope for a turnaround, with US futures mildly in the green at 0.1% on average.
- The CME Group FedWatch Tool shows that markets are pricing in an 88.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September.
- The benchmark 10-year US Treasury bond yield trades at 4.23%, retreating a touch from its peak earlier this week.
US Dollar Index technical analysis: steady as she goes
The US Dollar is hovering at the monthly high in the US Dollar Index (DXY). The Greenback retreats a touch this Friday, though remains at several three to six-months highs against most major G10 peers. Any sudden headline or squeeze could see fresh highs if the headlines would bear a risk off tone.
On the upside, 104.00 is the level to head to. The high of July at 103.57 is vital and needs to get a daily close above in order for the DXY to eke out more monthly gains. Should this US Dollar strength persist for the last part of this year, May’s peak at 104.70 could become reality again.
On the downside, several floors are likely to prevent a steep decline in the DXY. The first one is the 200-day Simple Moving Average (SMA) at 103.26, which got broken very briefly on Thursday. Passing below the 103.00 big figure, some room opens up for a further drop. However, around 102.34 both the 55-day and the 100-day SMA are awaiting to catch any falling knives.
US Dollar FAQs
What is the US Dollar?
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 found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
How do the decisions of the Federal Reserve impact the US Dollar?
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
What is Quantitative Easing and how does it influence the US Dollar?
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
What is Quantitative Tightening and how does it influence the US Dollar?
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
© 2000-2024. All rights reserved.
This site is managed by Teletrade D.J. LLC 2351 LLC 2022 (Euro House, Richmond Hill Road, Kingstown, VC0100, St. Vincent and the Grenadines).
The information on this website is for informational purposes only and does not constitute any investment advice.
The company does not serve or provide services to customers who are residents of the US, Canada, Iran, The Democratic People's Republic of Korea, Yemen and FATF blacklisted countries.
Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.
Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.
Please contact our PR department if you have any questions or need assistance at pr@teletrade.global.
Bank transfers
