- The American dollar indicator remains under pressure because the fears of the economic fall resulting from tariffs to the United States.
- The CME Fedwatch tool shows that traders now expect the first reduction of the FED rate in July.
- President Trump said that a trade agreement with China can be finalized over the next three to four weeks.
The American dollar index (DXY), which measures the American dollar (USD) in relation to the basket of six main currencies, remains below 99.50 in the early European hours on Friday. Greenback remains subdued in connection with the growing fears of the economic impact of tariffs on the United States (USA). Market participants strictly monitor changes in negotiations in trade in the US, although it is expected that commercial activities will be suppressed due to holidays on Good Friday.
However, the American dollar has gained some support after the hawks of the chairman of the Federal Reserve Jerome Powell, who warned that the snail-paced economy in combination with lasting inflation may complicate the goals of the fed’s policy and enhance the risk of stagflation. Meanwhile, President Donald Trump criticized Powell for being too snail-paced to lower interest rates, adding that his removal “cannot come quickly enough”.
According to the CME Fedwatch tool, the money market traders are currently valued at about 86 base points of the FED rates by the end of 2025, with the first reduction expected in July.
US President Donald Trump stated on Thursday that China had made many overtures and added: “I do not want to get higher from the Chinese tariff. If China tariffs go higher, people do not buy.” Trump has sanguine that a trade agreement with China can be achieved within three to four weeks.
On the front of the work, the US Department of Work announced on Thursday that the initial unemployed claims fell to 215,000 in the week ending on April 12, below expectations and fell from the changed number of 224,000 from the previous week (originally 223,000). However, continuous unemployment claims increased by 41,000 to 1.885 million a week ending on April 5.
FAQ in American dollars
The American 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 with local notes. It is most often a commercial currency in the world, which is over 88% of all global currency turnover, i.e. an average of $ 6.6 trillion of transactions per day, according to the data from 2022. After the Second World War, USD took over from the British pound as the reserve currency of the world. For most of its history, the American dollar was supported by gold, up to the Bretton Woods agreement in 1971, when the golden standard disappeared.
The most critical single factor affecting the value of the American dollar is the monetary policy, which is shaped by the Federal Reserve (FED). The Fed has two seats: achieving price stability (control inflation) and supporting full employment. Its main tool to achieve these two goals is to adjust interest rates. When the prices rise too quickly and inflation is above 2% of the Fed target, the FED will enhance the rates, which helps USD values. When inflation drops below 2% or the unemployment rate is too high, the Fed may reduce interest rates that are weighing in the green area.
In extreme situations, the Federal Reserve can also print more dollars and introduce quantitative alleviation (QE). QE is a process in which the Fed significantly increases the credit flow in the detained financial system. It is a non -standard policy measure used in the event of a loan desiccated, because the banks will not borrow (for fear of the contractor). This is the last last, when just lowering interest rates is unlikely to achieve the necessary result. The weapon of choosing the Fed was a FED weapon to combat the credit crisis, which took place during the great financial crisis in 2008. This includes FED printing more dollars and using them to buy US government bonds mainly from financial institutions. QE usually leads to a weaker American dollar.
Quantitative twist (QT) is the opposite process in which the federal reserve stops buying bonds from financial institutions and will not reinvest from the bonds that it has in up-to-date purchases. This is usually positive for the American dollar.
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