- The US dollar index remains under pressure as concerns about the economic repercussions of tariffs in the United States increase.
- The CME Fedwatch tool shows that traders now anticipate that the first reduction of Fed rates will occur in July.
- President Trump declared that a commercial agreement with China could be completed in the next three to four weeks.
The US dollar index (DXY), which measures the US dollar (USD) compared to a basket of six main currencies, is maintained below 99.50 during the first European hours on Friday. The dollar remains content in the midst of growing concerns about the economic impact of tariffs in the United States (USA). Market participants are closely monitoring developments in the US trade negotiations, although commercial activity is expected to be moderate due to the Good Friday holiday.
However, the US dollar won some support after the hard line comments of the president of the Federal Reserve, Jerome Powell, who warned that a slow economy combined with persistent inflation could complicate the Fed policy objectives and increase the risk of stagflation. Meanwhile, President Donald Trump criticized Powell for being too slow to cut the interest rates, adding that his dismissal “cannot arrive sufficiently soon.”
According to the CME Fedwatch tool, the monetary market traders are currently valuing around 86 basic points of FED fees cuts by the end of 2025, with the first early reduction in July.
The president of the USA, Donald Trump, declared on Thursday that China had made multiple approaches and added: “I don’t want to increase tariffs on China. If tariffs on China increase, people won’t buy.” Trump expressed optimism that a commercial agreement with China could be reached within three to four weeks.
In the labor front, the US Department of Labor reported on Thursday that the initial unemployment applications fell to 215,000 for the week that ended on April 12, below expectations and decreasing from the revised figure of the previous week of 224,000 (originally 223,000). However, continuous unemployment requests increased by 41,000 to 1,885,000 for the week ending on April 5.
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.
