The US Dollar Index (DXY) is currently facing challenges as it edges lower to near 103.20 against six major currencies. This decline is attributed to the decrease in US Treasury yields, which are currently at 4.01% and 3.97%. The market is anticipating a 25-basis point interest rate cut by the Federal Reserve (Fed) in September, leading to additional pressure on the Greenback.
Traders are closely monitoring the US economy for signs of a potential recession, with the CME FedWatch tool indicating a 100% probability of a rate cut next month. Recent data shows that US Initial Jobless Claims fell to 233,000, below the expected 240,000, indicating a mixed outlook for the economy.
Despite the weakening US Dollar, safe-haven flows are increasing due to heightened geopolitical tensions in the Middle East. The conflict between Israel and Hamas-led militants has intensified, leading to concerns of a broader regional conflict. This has resulted in a limited downside for the Greenback.
US Dollar FAQs
The US Dollar (USD) is the most traded currency globally, accounting for over 88% of all foreign exchange turnover. The value of the USD is heavily influenced by the Federal Reserve’s monetary policy, which aims to achieve price stability and full employment. Factors such as inflation and interest rates play a significant role in determining the value of the Greenback.
In times of economic crisis, the Federal Reserve may implement quantitative easing (QE) to increase credit flow in the financial system. This usually leads to a weaker US Dollar. On the other hand, quantitative tightening (QT) involves the Fed stopping the purchase of bonds, which can have a positive impact on the USD.