US Dollar Index jumps to near 99.50 as Iran’s retaliation threats US-Iran deal optimism
- The US Dollar Index climbs to near 99.50 as Iran’s attacks on US military bases have re-escalated US-Iran tensions.
- IRGC threatens more responsive action if it faces more attacks from the US.
- The odds of the Fed delivering at least one interest rate hike this year are over 50%.
The US Dollar (USD) attracts significant bids in the Asian trading session on Thursday, as Iran retaliates against the United States (US) attack near Bandar Abbas airport, Tasnim agency reported.
As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.25% higher to near 99.50.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.31% | 0.43% | 0.08% | 0.21% | 0.58% | 0.49% | 0.35% | |
| EUR | -0.31% | 0.12% | -0.24% | -0.10% | 0.28% | 0.20% | 0.05% | |
| GBP | -0.43% | -0.12% | -0.36% | -0.23% | 0.16% | 0.08% | -0.09% | |
| JPY | -0.08% | 0.24% | 0.36% | 0.11% | 0.50% | 0.39% | 0.27% | |
| CAD | -0.21% | 0.10% | 0.23% | -0.11% | 0.38% | 0.28% | 0.14% | |
| AUD | -0.58% | -0.28% | -0.16% | -0.50% | -0.38% | -0.07% | -0.24% | |
| NZD | -0.49% | -0.20% | -0.08% | -0.39% | -0.28% | 0.07% | -0.16% | |
| CHF | -0.35% | -0.05% | 0.09% | -0.27% | -0.14% | 0.24% | 0.16% |
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).
Iran’s Islamic Revolutionary Guard Corps (IRGC) said that it attacked US military bases and threatened that more US attacks would face 'a more decisive' response from the Iranian military.
The IRGC had already vowed retaliation after so-called “defensive strikes” from the US Central Command on Wednesday, which were conducted against Iranian boats deploying mines.
The exchange of attacks between the US and Iran has significantly dented optimism towards a permanent peace deal. Iran’s retaliation has also resulted in a sharp increase in oil prices, a scenario that could boost inflation expectations further and force traders to raise hawkish Federal Reserve (Fed) bets.
Currently, the CME FedWatch tool, the odds of the Fed holding interest rates at their current levels this year are 43.1%, while the rest favor at least one interest rate hike this year. This is already a sharp turnaround from two interest rate cuts anticipated before the onset of the war.
Going forward, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for April, which will be published at 12:30 GMT. The US PCE Inflation data – which is the Fed’s preferred inflation gauge – is estimated to have grown at a faster pace of 3.8% against the previous reading of 3.5%.
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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