- The US dollar index pauses in the early European session on Thursday.
- Uncertainty about tariffs is increasing costs in the US, according to the beige book of the Fed.
- Business activity in the US was slowed to a minimum of 16 months in April.
The US dollar index (DXY), an index of the value of the US dollar (USD) measured in front of a basket of six world currencies, slides to about 99.60 on Thursday in the midst of mitigated concerns about possible tariff threats by US President Donald Trump.
The companies that face the early stages of Trump’s tariffs are looking for ways to transfer increasing costs to consumers, according to the Beige Book Report of the Federal Reserve (Fed) on Wednesday. Companies reported having received alerts from suppliers about price increase, and sought ways not to absorb increases, while noting uncertainty about the ability to transfer them to customers. The uncertain economic perspective of the US caused by Trump’s tariff threats could weigh on the USD in front of its rivals in the short term.
The US Treasury Secretary, Scott Besent, said Tuesday that the current tariff confrontation against China is unsustainable, and awaits a “unfaired” in the commercial war between the two largest economies in the world in the near future. However, the Trump administration pointed out of Wednesday that the US will establish tariffs for China in the next two to three weeks, and depends on China how soon the tariffs can be reduced. Investors will closely follow developments around commercial conversations between the US and China. Any sign of a new climbing could contribute to the decline of the USD.
The data published on Wednesday revealed that the Flash compound production index of the US USA, which tracks the manufacturing and services sectors, was reduced to 51.2 in April compared to 53.3 above. This figure registered the lowest level since December 2023.
Meanwhile, the manufacturing PMI rose to 50.7 in April from the previous reading of 50.2, better than the estimate of 49.4. The PMI of services decreased to 51.4 in April from 54.4 in March, below the 52.8 market consensus.
On the other hand, the hard line comments of the FED officials could help limit the losses of the USD. The president of the Fed, Jerome Powell, said last week that the US Central Bank was in no hurry to move interest rates, but warned that Trump’s tariff policies ran the risk of removing inflation and use of Fed’s objectives.
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.
