|

US Dollar Index refreshes five-week high near 99.40 as oil prices extend advance

  • The US Dollar Index posts a fresh over five-week high near $99.40 due to multiple tailwinds.
  • The US and Israel are expected to be preparing for coordinated attacks against Iran.
  • Investors expect the Fed to deliver at least one interest rate hike this year.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, starts the week on a positive note, as oil prices extend its advance due to fears that the war between the United States (US) and Iran will resume.

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 Australian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.04%0.10%0.10%0.03%0.30%0.07%0.00%
EUR-0.04%0.04%0.06%-0.02%0.23%0.02%-0.05%
GBP-0.10%-0.04%0.00%-0.07%0.20%-0.03%-0.09%
JPY-0.10%-0.06%0.00%-0.11%0.18%-0.08%-0.13%
CAD-0.03%0.02%0.07%0.11%0.28%0.04%-0.02%
AUD-0.30%-0.23%-0.20%-0.18%-0.28%-0.22%-0.27%
NZD-0.07%-0.02%0.03%0.08%-0.04%0.22%-0.05%
CHF-0.00%0.05%0.09%0.13%0.02%0.27%0.05%

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).

In the Asian session, the USD Index rose to near 99.45, the highest level seen in over five weeks. As of writing, the WTI Oil price is up almost 2% around $103.00

Over the weekend, a report from The New York Times (NYT) showed that the US and Israel are preparing for a coordinated attack on Iran as soon as next week. On Sunday, US President Donald also stated in a post on Truth Social that the “Clock is Ticking” for Iran, and they “better get moving, FAST, or there won’t be anything left of them,” adding, “TIME IS OF THE ESSENCE!

Latest threats from US President Trump against Tehran came due to the US-Iran negotiations deadlock before Trump’s visit to China during the May 13-15 period, which is prompting oil prices and eventually boosting global inflationary pressures.

Higher oil prices have forced traders to price in the possibility of atleast one interest rate hike this year, a significant turnaround from two interest rate cuts anticipated during the peace time. According to the CME FedWatch tool, the odds of the Fed delivering at least one interest rate hike this year is 53.7%, while the rest favor the central bank maintaining a status quo.

For more cues on the Fed’s monetary policy outlook, investors will focus on the Federal Open Market Committee (FOMC) minutes of the April policy meeting, which will be released on Wednesday.

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.

Author

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

More from Sagar Dua
Share:

Editor's Picks

GBP/USD off highs, back to 1.3620

GBP/USD remains slightly on the defensive at the end of the week, receding to the low 1.3600s after hitting fresh tops past 1.3670 earlier in the day. Cable’s correction comes after two daily gains in a row and amid a tepid advance in the Greenback, while poor UK data also accompany the downside.

EUR/USD treads water below 1.1700

EUR/USD now trades with modest losses around 1.1670 following another unsuccessful atempt to advance past 1.1700 the figure in a convincing fashion. The pair’s decline follows a maginal rebound in the US Dollar as market participants continue to assess recent US data as well as developments from the US bond market.

Gold eases from mid-May highs; holds above $4,600 amid bearish USD

Gold pulls back slightly from its highest level since mid-May, touched during the Asian session on Monday, though it manages to hold above $4,600. Diminishing odds of an immediate Fed rate hike continue to undermine the US Dollar despite further escalation of US-Iran tension and inflation risks stemming from higher oil prices. This continues to underpin the non-yielding bullion, though bulls seem hesitant ahead of key US inflation data and Fed Chair Kevin Warsh's speech at the Jackson Hole Symposium later this week.

Week ahead: Fed’s Jackson Hole and Nvidia earnings to dictate markets
The new Fed chair, Kevin Warsh, has made few public appearances since taking the central bank helm in May, yet he’s found it difficult to steer off controversy. Question marks about his relations with the President, Donald Trump, continue to swirl, while markets are still trying to make sense of his approach to monetary policy.
CFTC Report: Oil positioning rebounds; VIX and Yen exposure turn more bearish
The week in one sentence: Speculative positioning turned more constructive in the week to August 18. WTI recorded the largest increase, followed by a sharp narrowing in CAD net shorts. VIX and JPY positioning moved the other way, while Gold remained the clearest crowded long despite a softer spot price.
$20 billion offered, $2 billion taken: Why Treasury doubled its buyback cap

The US Treasury moved off its own calendar on Wednesday, and that is the part worth sitting with. At 12:32 GMT, the department said it would at least double the size of liquidity support buyback operations in the 10-year to 20-year and 20-year to 30-year sectors, lifting the maximum from $2 billion per operation to at least $4 billion, effective September 9 and running to November 4.