- The US dollar index recovered around 99.75 in Europe's early session on Friday.
- Hope for us to talk to trade with allies to support the US dollar.
- China pushed the tariff cancellation to end the trade war.
The US Dollar Index (DXY), an index of the US dollar value (USD) measured against a basket of six currencies in the world, higher than near 99.75 during the first European session on Friday amid positive development in negotiations with India, Japan and South Korea allies. Investors are paying for the final reading of the US Michigan consumer sentiment, which will soon be later on Friday.
US Treasury Secretary Scott Bescent has suggested that India is likely to be the first country to end a bilateral trade agreement with the US to prevent Trump's rewarding tariffs on India's exports. Japan's Minister of Economy Ryosei Akazawa, will be making a second -time speech in the Bescent trade next week.
Meanwhile, South Korea has requested “calm” and “proper” US discussions on trading issues, as they aim to work in the US before pauseing reward tariffs was raised in July. Any signs of trade communication development can lift a greenback in a near term.
“If the perception spreads that a reduction in tariffs is near, it can positively influence tariff negotiations in other countries, leading to a contraction from the regional sentiment and a reduction in the sale of US assets,” which could have buoy dollars back to 145 yen, the analysts of Mizuhuho wrote on a note.
On the other hand, merchants are concerned about prospects for the US economy provided by Trump's uneven message in the Federal Reserve's trade and intervention agreements. In addition, a lack of actual development towards the opening of talks in China can drag the USD lower against its rivals.
Trump said on Thursday that his administration was talking to China in trade. However, Beijing said no negotiations were held in the economy and trade, and it urged the US to raise all unilateral tariff steps if it wanted to resolve the issue.
US Dollar FAQ
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 in which it is found in circulation next to local notes. This is the most severely exchanged currency in the world, worth more than 88% of all global foreign exchange transfers, or an average of $ 6.6 trillion in transactions per day, according to data from 2022. Following World War II, the USD took from the British Pound as the world's reserve currency. For most of its history, the US dollar was gold -back, to the Bretton Woods agreement in 1971 when the gold standard left.
The most important single factor affecting the value of the US dollar is financial policy, shaped by the Federal Reserve (FED). Fed has two mandates: to achieve control inflation and promote full work. Its main tool to achieve these two goals is by organizing interest rates. When prices rise rapidly and inflation is above the target of 2% of the Fed, the Fed will increase rates, which contributes to USD value. When inflation falls below 2% or the unemployment rate is too high, the Fed may lower interest rates, with a greenback weight.
In extreme situations, the federal reserve can also print more dollars and make easing (QE) volume. QE is the process by which the Fed greatly increases the flow of credit to a stuck financial system. This is a non -standard policy proposal used when credit is dry because banks will not lend to each other (out of fear of default counterparts). This is a last way if only the decrease of interest rates is not likely to achieve the required result. It was the Fed weapon chosen to fight the credit crunch that occurred during the great financial crisis in 2008. It involves the Fed printing more dollars and used them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US dollar.
The quantity of tightening (QT) is the reverse process in which the federal reserve stops buying bonds from financial institutions and does not re -consist of the principal from the bonds it holds in new purchases. This is usually positive for the US dollar.
