- USD kicks off the new week on a weaker note and snaps a three-day winning streak.
- Bets that the Fed will resume its rate-cutting cycle soon seem to weigh on the buck.
- A positive risk tone also undermines the safe-haven USD and contributes to the slide.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, struggles to capitalize on a three-day-old recovery from a multi-month low and attracts fresh sellers at the start of a new week. The index remains depressed through the first half of the European session and is currently placed below the 104.00 mark, down around 0.20% for the day.
The Federal Reserve's (Fed) less dovish outlook maintained its forecast to deliver two 25 basis points rate cuts by the end of this year and gave a bump higher to its inflation projection. Investors, however, have been speculating that the US central bank will resume its rate-cutting cycle sooner than expected amid worries about a tariff-driven slowdown in US economic activity. This, in turn, is seen undermining the Greenback.
Meanwhile, Reports over the weekend indicated that US President Donald Trump is planning a narrower, more targeted agenda for the so-called reciprocal tariffs set to take effect on April 2. This boosts investors' appetite for riskier assets and turns out to be another factor denting demand for the safe-haven buck. That said, a goodish pickup in the US Treasury bond yields could help limit any meaningful downside for the USD.
Traders now look forward to the release of the flash US PMIs, which, along with speeches by influential FOMC members, might provide some impetus to the Greenback. The focus, however, will remain glued to the US Personal Consumption Expenditure (PCE) Price Index on Friday, which could offer fresh cues about the Fed's rate-cut path and determine the next leg of a directional move for the Greenback.
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.
BRANDED CONTENT
Finding the right broker for your trading strategy is essential, especially when specific features make all the difference. Explore our selection of top brokers, each offering unique advantages to match your needs.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays below 1.0800 after upbeat US data
EUR/USD struggles to gain traction and trades below 1.0800 in the American session on Wednesday. Upbeat February Durable Goods Orders data from the US support the US Dollar in the second half of the day, making it difficult for the pair to stage a rebound.
GBP/USD drops to fresh two-week lows below 1.2900
GBP/USD remains under pressure and trades at a fresh two-week low below 1.2900 in the American session on Wednesday. Soft February inflation data from the UK and the Spring Budget delivered by Chancellor Rachel Reeves weigh on Pound Sterling midweek.
Gold clings to modest daily gains above $3,020
Gold fluctuates in a relatively tight range and manages to hold above $3,020 midweek. The precious metal seems to be benefiting from the positive sentiment surrounding the commodities after Copper climbed to a new all-time high earlier in the day.
Bitcoin holds $87,000 as markets brace for volatility ahead of April 2 tariff announcements
Bitcoin (BTC) holds above $87,000 on Wednesday after its mild recovery so far this week. A K33 Research report explains how the markets are relatively calm and shaping up for volatility as the market absorbs the tariff announcements.
Sticky UK services inflation shows signs of tax hike impact
There are tentative signs that the forthcoming rise in employer National Insurance is having an impact on service sector inflation, which came in a tad higher than expected in February. It should still fall back in the second quarter, though, keeping the Bank of England on track for three further rate cuts this year.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.