Conversely, when interest rates are lowered to stimulate economic growth, investors could look to invest in another country, pulling the USD lower. This is because higher interest rates attract foreign investment, lifting demand for the currency.
Political events, as well as geopolitical events, can also influence the US dollar. The global status of the USD is mainly drivern by the strength of the US economy and changes in its value therefore having implications for the global economy.įor example, when US inflation is elevated, and the Fed raises interest rates to rein in consumer prices, the USD value often appreciates. Several key factors influence the value of the USD against other currencies, such as monetary policy decisions made by the Federal Reserve, which depend on the macroeconomic backdrop and data. The US Dollar Index rallied from a low point of 94.63 in mid-January to a 20-year high of just over 114 in late September.ĭXY has experienced a significant drop since the publication of cooler-than-expected inflation data. Expectations of slower rate hikes from the Fed, and a lower potential terminal rate for US interest rates, have resulted in a repositioned dollar. How did the US dollar perform in 2022?Īfter steadily climbing throughout 2021, the DXY saw a solid start to 2022. For example, EUR/USD measures the euro against the US dollar. The value of the USD is measured against the value of other currencies, creating the exchange rate. The USD is the world’s reserve currency and the most traded currency on the foreign exchange market. USD is the abbreviation for the US dollar or United States dollar, the official currency of the United States, the world’s most widespread and popular currency. Read on for the latest USD news and USD forecasts. As a result, markets now strongly expect a half-point increase in March and the peak, or terminal rate, to hit close to 5.75% before the Fed is finished. However, slowing rates of inflation, a policy pivot by the Fed, and fears of a potential recession in the US have pulled the greenback off its highs.įederal Reserve Chairman Jerome Powell indicated on Tuesday 7 March that interest rates are likely to head higher than central bank policymakers had expected.Īround the time of the last rate hike, the Fed had indicated rates could rise to 5% in 2023.
The USD’s status as a safe-haven currency was boosted by global economic slowdown fears and expectations of a hawkish Fed over the course of last year. The ICE US Dollar Index (DXY) – a measure of the currency’s strength against a basket of rival currencies including the euro ( EUR), Japanese yen ( JPY) and British pound ( GBP) – stood at the 103 mark as of 13 March 2023, down over 1% since August 2022, but still remains 4% higher compared to the same time last year.Īn aggressive monetary contraction policy implemented by the US Federal Reserve ( Fed) culminated in a 50-basis-point ( bp) interest rate hike in December 2022, raising policy rates to a range between 4.25% to 4.5%. The Fed’s fight against inflation, and the resultant effect on the US bond market, have encouraged both the upswings and the latest decline. Can the US dollar keep on rising? – Photo: Andrii Spy_k /
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