USD/CHF picks up to 0.7930 with the Dollar a tad firmer ahead of US jobs data
- Upbeat US jobs and manufacturing data have given some oxygen to an ailing US Dollar.
- Fed Powell reaffirmed his cautious stance towards rate cuts at the ECB summit in Portugal.
- Concerns about the US fiscal health and tariff uncertainty remain a significant weight for USD recovery.
The US Dollar is showing a slightly firmer tone on Wednesday with the USD/CHF bouncing up from multi-year lows at 0.7875, but still capped below previous lows at the 0.7960 area.
The Greenback drew some support on Tuesday from a strong US JOLTS Job Openings report and a larger-than-expected improvement in manufacturing activity.
These figures endorsed Fed Powell’s earlier comments at the ECB Forum oc Central Banking in Sintra, Portugal, where the chair of the US central bank confirmed his cautious stance toward interest rate cuts, amid a likely increase on inflation stemming from Trump’s tariffs.
The pair, however, maintains its bearish bias intact as market concerns about the impact of Trump’s tax bill on US Government debt and the lack of progress on trade deals remain significant headwinds to any US Dollar recovery.
The Swiss calendar is void on Wednesday, and the market will be looking at the US ADP employment report. After the strong JOLTS reading on Tuesday, another upbeat release today might boost expectations for Thursday’s payroll report and provide additional support to the US Dollar.
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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