US dollar index trades firmly around 98.50 in countdown to Trump-Xi meeting outcome
- The US Dollar Index exhibits strength near 98.50, with investors awaiting the Trump-Xi meeting outcome.
- Higher US inflation at both the consumer and the producer level has weighed on dovish Fed bets.
- The US headline producer inflation accelerated to 6% YoY in April.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds onto gains near 98.50 during the Asian trade on Thursday. The US Dollar (USD) reflects strength as traders have become increasingly confident that the Federal Reserve (Fed) will not cut interest rates this year.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.31% | 0.23% | 0.85% | 0.21% | -0.38% | 0.16% | 0.50% | |
| EUR | -0.31% | -0.10% | 0.59% | -0.13% | -0.71% | -0.19% | 0.18% | |
| GBP | -0.23% | 0.10% | 0.17% | -0.05% | -0.64% | -0.09% | 0.27% | |
| JPY | -0.85% | -0.59% | -0.17% | -0.71% | -1.24% | -0.69% | -0.31% | |
| CAD | -0.21% | 0.13% | 0.05% | 0.71% | -0.48% | 0.02% | 0.29% | |
| AUD | 0.38% | 0.71% | 0.64% | 1.24% | 0.48% | 0.55% | 0.89% | |
| NZD | -0.16% | 0.19% | 0.09% | 0.69% | -0.02% | -0.55% | 0.34% | |
| CHF | -0.50% | -0.18% | -0.27% | 0.31% | -0.29% | -0.89% | -0.34% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
According to the CME FedWatch tool, the odds of the Fed holding interest rates at their current levels or delivering at least one interest rate hike this year are 66.8% and 32.2%, respectively.
Traders have pared dovish Fed bets due to accelerating inflationary pressures in the United States (US) economy amid higher energy prices. The data showed on Tuesday that the headline Consumer Price Index (CPI) grew strongly by 3.8% Year-on-Year (YoY) in April from 3.3% in March.
On Wednesday, the US headline Producer Price Index (PPI) data for April arrived significantly higher at 6% YoY vs. 4.9% estimates and the previous reading of 4.3%.
Meanwhile, investors await the outcome of the meeting between US President Donald Trump and Chinese leader Xi Jinping in Beijing. Both leaders are expected to be discussing the Iran war, Taiwan, Artificial Intelligence (AI), tariffs, and rare earths.
On the domestic front, investors will focus on the US Retail Sales data for April, which will be published at 12:30 GMT.
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 found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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