US Dollar outperforms its peers ahead of Fed’s policy decision

The US Dollar Index advances to near 108.20 ahead of the Fed’s monetary policy decision in which the central bank is expected to keep interest rates steady.
Investors will be keen to know the impact of Trump’s economic agenda on the interest rate outlook from Fed Powell.
US Donald Trump is poised to impose 25% tariffs on Canada and Mexico.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to near Friday’s high of 108.20 in Wednesday’s North American session. The US Dollar (USD) performs strongly against its major peers ahead of the Federal Reserve’s (Fed) monetary policy decision, which will be announced at 19:00 GMT.

US Dollar PRICE Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.43%	0.34%	-0.14%	0.42%	0.68%	0.57%	0.40%
EUR	-0.43%		-0.09%	-0.52%	-0.00%	0.24%	0.17%	-0.03%
GBP	-0.34%	0.09%		-0.46%	0.09%	0.33%	0.24%	0.06%
JPY	0.14%	0.52%	0.46%		0.54%	0.80%	0.68%	0.52%
CAD	-0.42%	0.00%	-0.09%	-0.54%		0.26%	0.15%	-0.03%
AUD	-0.68%	-0.24%	-0.33%	-0.80%	-0.26%		-0.10%	-0.28%
NZD	-0.57%	-0.17%	-0.24%	-0.68%	-0.15%	0.10%		-0.18%
CHF	-0.40%	0.03%	-0.06%	-0.52%	0.03%	0.28%	0.18%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

According to the CME FedWatch tool, trades are confident that the Fed will certainly announce a pause to the current policy-easing cycle by leaving interest rates unchanged in the range of 4.25%-4.50%. Therefore, the impact of the Fed’s policy decision on the US Dollar won’t last long.

However, the Fed’s guidance on the monetary policy outlook will be more critical for currency markets for which investors will pay close attention to Chair Jerome Powell’s press conference. Powell is expected to face questions like how long the Fed will keep interest rates steady and the impact of United States (US) President Donald Trump’s economic agenda on the monetary policy stance.

Market participants are worried that Trump’s economic policies, such as immigration controls, higher tariffs and lower taxes will be pro-growth and inflationary for the economy, which could force the Fed to leave interest rates at their current levels for longer.

Meanwhile, Donald Trump is poised to raise tariffs on Canada and Mexico by 25% from February 1. White House Press Secretary Karoline Leavitt reported on Tuesday that 25% tariffs on Canada and Mexico from February 1 are “still on the books”. Leavitt added that the President is “very much still considering 10% tariffs on China” from Saturday.

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.