US Dollar Index holds gains near 99.00 ahead of CPI data
- US Dollar Index stays firm on safe-haven demand amid ongoing uncertainty over the fragile US–Iran ceasefire.
- US official confirms Lebanon–Israel talks will be held next week in Washington, DC.
- President Trump said US forces will remain deployed around Iran until full compliance with the agreement.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is halting its four-day losing streak and trading around 98.90 during the Asian hours on Friday. Traders are awaiting the US Consumer Price Index (CPI) report due later in the North American session, a key catalyst for near-term Federal Reserve (Fed) policy direction.
The Greenback remains supported by renewed risk aversion, driven by persistent uncertainty surrounding the United States (US)–Iran ceasefire. Market sentiment stays cautious as Israel continues strikes on Hezbollah, despite Benjamin Netanyahu stating that Israel will soon begin direct negotiations with Lebanon. Meanwhile, US President Donald Trump said US forces will remain deployed around Iran until full compliance with the agreement is achieved.
JD Vance, along with senior envoys Steve Witkoff and Jared Kushner, is scheduled to meet in Pakistan this weekend to discuss a potential long-term deal with Iran. In contrast, Esmaeil Baghaei said any negotiations to end the conflict depend on US compliance with ceasefire commitments, including halting hostilities in Lebanon, an interpretation rejected by Washington and Israel.
Additionally, the Federal Reserve's March Meeting Minutes indicate policymakers are maintaining a wait-and-see approach, while acknowledging that inflation risks linked to higher oil prices are becoming more balanced.
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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