US Dollar Index edges up to near 97.20 in countdown to FOMC Minutes

The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.1% higher to near 97.20 during the early European trading session on Wednesday. The US Dollar (USD) ticks up while investors await the release of the Federal Open Market Committee (FOMC) Minutes of the January policy meeting at 19:00 GMT.

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 New Zealand Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.04%	0.02%	0.14%	0.10%	0.19%	0.83%	0.10%
EUR	-0.04%		-0.03%	0.07%	0.06%	0.15%	0.79%	0.04%
GBP	-0.02%	0.03%		0.08%	0.08%	0.17%	0.81%	0.06%
JPY	-0.14%	-0.07%	-0.08%		-0.01%	0.08%	0.70%	-0.03%
CAD	-0.10%	-0.06%	-0.08%	0.01%		0.09%	0.72%	-0.02%
AUD	-0.19%	-0.15%	-0.17%	-0.08%	-0.09%		0.63%	-0.13%
NZD	-0.83%	-0.79%	-0.81%	-0.70%	-0.72%	-0.63%		-0.74%
CHF	-0.10%	-0.04%	-0.06%	0.03%	0.02%	0.13%	0.74%

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).

Financial market participants will closely watch FOMC minutes to get a detailed explanation behind the Federal Reserve’s (Fed) decision to pause the monetary easing cycle after three back-to-back interest rate cuts. Investors would also gauge cues regarding the monetary policy outlook.

In the policy, the Fed left interest rates unchanged in the range of 3.50%-3.75% and indicated that they will remain data-dependent for further monetary policy decisions.

The CME FedWatch tool showed that traders are confident about the Fed holding interest rates steady at their current levels in the March and April policy meetings.

Meanwhile, FOMC members continue to stress that the Fed needs to bring price pressures down even as the US inflation has cooled in January. “We need to get inflation down, and we need to make sure that it’s on a good path,” San Francisco Fed Bank President Mary Daly said on Tuesday, Reuters reported.

This week, investors will also focus on the preliminary Q4 Gross Domestic Product (GDP) data, which will be released on Friday. The US economy is estimated to have grown at an annualized pace of 3%, slower than the previous reading of 4.4%.

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.

Source: https://www.fxstreet.com/news/us-dollar-index-edges-up-to-near-9720-in-countdown-to-fomc-minutes-202602180600