The US Dollar Index (DXY) is on a downward trend for the second consecutive day, trading around 102.10 in the Asian market on Monday. The decline is attributed to dovish comments from Federal Reserve (Fed) officials, raising expectations for a rate cut in September. Recent US economic data also shows a slowdown in inflation, further pushing the dollar down.
San Francisco Fed President Mary Daly emphasized the need for a gradual reduction in interest rates, contrary to concerns about a sharp economic slowdown. The cautious approach is echoed by Chicago Fed President Austan Goolsbee, who warns against maintaining a restrictive policy for too long.
Moreover, the decrease in US yields is adding pressure on the Greenback, with 2-year and 10-year Treasury bond yields at 4.05% and 3.88% respectively. All eyes are now on Fed Chair Jerome Powell’s upcoming speech, expected to provide more insights into the central bank’s future actions.
US Dollar FAQs
The US Dollar (USD) is the most traded currency globally, accounting for over 88% of all foreign exchange transactions. The value of the USD is heavily influenced by the Federal Reserve’s monetary policy, aimed at maintaining price stability and full employment. Adjustments in interest rates by the Fed impact the value of the dollar, with rate hikes boosting its value and rate cuts weighing it down.
In extreme situations, the Fed can resort to quantitative easing (QE) to increase credit flow in the financial system, leading to a weaker dollar. Conversely, quantitative tightening (QT) involves reducing bond purchases by the Fed, which can strengthen the US Dollar.