The US Dollar Index Reaches 100.65 in Asian Trading
- US Durable Goods Orders Unchanged in August
- US Economy Grew at 3.0% Rate in Q2
- US Fed’s Dovish Tone Continues to Impact Greenback
The US Dollar Index (DXY) has seen a resurgence, climbing to nearly 100.65 during Friday’s Asian trading session. The ongoing expectation of future interest rate cuts by the Federal Reserve (Fed) continues to put pressure on the USD across the board.
Fed’s Recent Rate Cut and Outlook
Last week, the Fed made a significant move by cutting interest rates by 50 basis points. Fed Chair Jerome Powell described this adjustment as a “recalibration” aimed at supporting the labor market and moving inflation towards the Fed’s 2% target. The Fed is likely to implement further rate cuts in the upcoming months, although the path is not predetermined. This anticipation could lead to a decline in the DXY in the short term.
Market Response to US Economic Data
Although positive US economic data on Thursday provided some initial support for the Greenback, the rally faded as attention turned to the upcoming US inflation data release. Analysts project a 2.3% YoY increase in the headline Personal Consumption Expenditures (PCE) Price Index for August, with the core PCE expected to rise by 2.7% YoY.
Recent data from the US Census Bureau showed that US Durable Goods Orders remained unchanged in August, surpassing market expectations. Additionally, the final US Gross Domestic Product (GDP) for Q2 grew at an annual rate of 3.0%, in line with previous estimates.
Fed Governors’ Statements
Fed Governor Lisa Cook expressed support for the recent interest rate cut as a response to mounting “downside risks” to employment. Fed Governor Adriana Kugler echoed a dovish sentiment, indicating that additional rate cuts may be necessary if current conditions persist, further influencing the downward trend of the US Dollar Index.
US Dollar FAQs
Overview of the US Dollar
The US Dollar (USD) serves as the official currency of the United States and is widely used in various countries alongside local currencies. It is the most traded currency globally, accounting for a significant portion of foreign exchange transactions. Following World War II, the USD became the world’s reserve currency and was formerly backed by Gold until the Bretton Woods Agreement in 1971.
Factors Impacting the US Dollar
Monetary policy, shaped by the Federal Reserve (Fed), plays a crucial role in determining the value of the US Dollar. The Fed’s mandates include maintaining price stability and promoting full employment through interest rate adjustments. Rising inflation prompts rate hikes, strengthening the USD, while rate cuts to combat low inflation or high unemployment can weaken the Greenback.
Quantitative Easing and Tightening
In extreme situations, the Fed may resort to quantitative easing (QE) by increasing credit flow in the financial system, leading to a weaker USD. Quantitative tightening (QT) involves reducing bond purchases and can have a positive impact on the US Dollar.