- The US Dollar Index depreciated following Trump's decision to delay the implementation of reciprocal tariffs.
- US Retail Sales are forecasted to contract by 0.1% MoM in January, following a previous increase of 0.4%.
- The Greenback may gain ground as US Core PPI inflation has increased the odds of the Fed delaying rate cuts.
The US Dollar Index (DXY), which tracks the US Dollar's (USD) performance against six major currencies, remains stable after losses in the previous session. At the time of writing, the DXY hovers around 107.00, while yields on 2-year and 10-year US Treasury bonds stand at 4.31% and 4.53%, respectively.
The US Dollar faces pressure following President Donald Trump's decision to delay the implementation of reciprocal tariffs. Additionally, declining US Treasury yields weigh on the Greenback, despite ongoing concerns about a global trade war.
Investor attention now shifts to the upcoming US Retail Sales report, the last key economic release of the week. Markets anticipate a slight monthly decline of 0.1% in January, following a 0.4% increase in the previous period.
Core PPI inflation in the United States (US) rose to 3.6% YoY in January, exceeding the expected 3.3% but slightly below the revised 3.7% (previously reported as 3.5%). This has reinforced expectations that the Federal Reserve (Fed) will delay rate cuts until the second half of the year. Additionally, persistently strong inflation could further support the outlook for the Fed to keep interest rates at 4.25%-4.50% for an extended period.
In his semi-annual address to Congress, Fed Chair Jerome Powell stated that policymakers “do not need to be in a hurry” to cut interest rates, citing a strong labor market and robust economic growth. He also warned that President Trump’s tariff policies could drive prices higher, complicating the Fed’s ability to lower rates.
A Reuters poll of economists now suggests the Fed will delay interest rate cuts until the next quarter due to rising inflation concerns. Many analysts who had previously anticipated a March rate cut have revised their forecasts, with the majority of respondents (surveyed between February 4-10) now expecting at least one rate cut by June, though opinions on the exact timing remain divided.
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.
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
AUD/USD gains ground above 0.6300 ahead of Chinese data
The AUD/USD pair gathers strength to near 0.6325 during the early Asian session on Monday. The uptick of the pair is bolstered by the weaker US Dollar and special plans from the Chinese government to boost consumption and raise incomes.
USD/JPY remains below 149.00; focus shifts to BoJ/Fed meetings this week
USD/JPY kicks off the new week on a weaker note amid the prevalent bearish sentiment surrounding the USD and the divergent Fed-BoJ policy expectations. However, a positive risk tone could undermine the JPY and limit losses.
Gold holds positive ground near $3,000 on safe-haven demand
Gold price remains strong near $2,985 after retracing from an all-time high of $3,005 during the early Asian session on Monday. The softer US Dollar and economic uncertainty over the impact of a global trade war provide some support to the precious metal.
Week ahead: Central banks in focus amid trade war turmoil
Fed decides on policy amid recession fears.Yen traders lock gaze on BoJ for hike signals. SNB seen cutting interest rates by another 25bps. BoE to stand pat after February’s dovish cut.
Week ahead – Central banks in focus amid trade war turmoil
Fed decides on policy amid recession fears. Yen traders lock gaze on BoJ for hike signals. SNB seen cutting interest rates by another 25bps. BoE to stand pat after February’s dovish cut.
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.