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Forex Today: US Dollar struggles to extend rebound as mood improves

Here is what you need to know on Wednesday, February 25:

Following the volatile action seen at the beginning of the week, the US Dollar (USD) stood resilient against its rivals on Tuesday. With the market mood improving, however, the USD started to lose its strength early Wednesday. Eurostat will publish revisions to January Harmonized Index of Consumer Prices (HICP) data later in the day. Since the US economic calendar will not feature any high-impact data releases, market focus will remain on comments from Federal Reserve (Fed) policymakers.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD-0.23%-0.16%-0.03%-0.18%-0.67%-0.32%-0.13%
EUR0.23%0.07%0.18%0.05%-0.45%-0.10%0.10%
GBP0.16%-0.07%0.15%-0.02%-0.52%-0.16%0.03%
JPY0.03%-0.18%-0.15%-0.14%-0.64%-0.29%-0.09%
CAD0.18%-0.05%0.02%0.14%-0.50%-0.15%0.05%
AUD0.67%0.45%0.52%0.64%0.50%0.36%0.55%
NZD0.32%0.10%0.16%0.29%0.15%-0.36%0.19%
CHF0.13%-0.10%-0.03%0.09%-0.05%-0.55%-0.19%

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).

Wall Street's main indexes gained traction after the opening bell on Tuesday and registered strong gains. In turn, the USD Index retreated from daily peaks to end the day marginally higher. In the European morning on Wednesday, US stock index futures trade flat and the USD Index stays in the red near 97.70.

During the early trading hours of the Asian session on Wednesday, US President Donald Trump delivered his State of the Union speech. Trump noted that there is no inflation and "tremendous growth," explaining tariffs as one of the main reasons behind the economic turnaround. Trump further added that almost all trading partners want to keep the trade deals they already made despite the Supreme Court's ruling.

EUR/USD closed marginally lower on Tuesday before gaining traction on Wednesday. At the time of press, the pair was trading near 1.1800, rising more than 0.2% on the day.

After rising sharply and posting gains for the third consecutive trading day on Tuesday, boosted by growing uncertainty about the Bank of Japan's (BoJ) policy-tightening outlook, USD/JPY seems to have entered a consolidation phase at around 156.00 on Wednesday. Earlier in the day, Japan’s Deputy Chief Cabinet Secretary Masanao Ozaki said that specifics of monetary policy are to be left to the BoJ.

Gold lost more than 1% on Tuesday but managed to hold comfortably above $5,100. XAU/USD corrects higher on Wednesday and advances toward $5,200.

Earlier in the day, the data from Australia showed that annual inflation, as measured by the change in the Consumer Price Index (CPI), held steady at 3.8% in January. This print came in above the market expectation of 3.7%. AUD/USD gathers bullish momentum on Wednesday and trades at its highest level in nearly two weeks above 0.7100.

GBP/USD gains traction and trades in positive territory above 1.3500 after struggling to find direction earlier in the week.

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

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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