- The US dollar index is recovered to around 99.75 in the first European session on Friday.
- Hope of US commercial conversations with allies to support the US dollar.
- China presses by the cancellation of tariffs to end the commercial war.
The American dollar index (DXY), an index of the value of the US dollar (USD) measured in front of a basket of six world currencies, advances about 99.75 during Friday’s first European session in the midst of positive developments in negotiations with Indian allies, Japan and South Korea. Investors prepare for the final reading of the Michigan consumer index of the USA, which will be published later on Friday.
The US Treasury Secretary, Scott Besent, has suggested that India will probably become the first country to finish a bilateral commercial agreement with the US to avoid Trump’s reciprocal tariffs on Indian exports. Japan Economy Minister Ryosei Akazawa will carry out a second round of commercial conversations with Besent next week.
Meanwhile, South Korea requested “quiet” and “ordered” discussions with the US on commercial issues, since it seeks to reach an agreement with the USA before the pause is raised in reciprocal tariffs in July. Any sign of progress in commercial conversations could raise the dollar in the short term.
“If the perception that a reduction of tariffs is close, could positively influence tariff negotiations with other countries, leading to a setback of the feeling of risk aversion and a decrease in the sale of US assets,” which could boost the dollar new to 145 yen, wrote Mizuho’s analysts in a note.
On the other hand, the merchants were concerned with the prospects of the US economy given Trump’s inconsistent message about trade agreements and the intervention of the Federal Reserve. In addition, the lack of real progress towards the opening of conversations with China could drag USD down against its rivals.
Trump said Thursday that his administration was talking to China about commerce. However, Beijing said that negotiations on economics and commerce had not been carried out, and urged the US to raise all unilateral tariff measures if you really want to solve the problem.
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.
