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US Dollar Index advances to near 100.00 as Trump sets no clear Iran ceasefire timeline

  • US Dollar Index advances to around 100.00 in Thursday’s early European session. 
  • Trump said he expects the war with Iran to last another two to three weeks. 
  • The US employment data for March will take center stage on Friday. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 100.00 during the early European trading hours on Thursday. The DXY rises following an address to the nation by US President Donald Trump. 

Trump said during a primetime televised speech from the White House on Thursday that his core "objectives are nearing completion" in Iran and expected another two or three weeks of involvement. However, he signaled that the US is prepared to intensify its military response in the remaining time period and threatened to bring Iran “back to the stone ages.” Ongoing conflict in the Middle East could provide some support to a safe-haven currency such as the US Dollar in the near term. 

Higher energy prices have strengthened the case for the US Federal Reserve (Fed) to keep interest rates steady. Traders in the futures market have priced in nearly a 52% probability of a Fed rate increase by the end of 2026, the first time it has crossed the 50% threshold, according to CNBC. 

All eyes will be on the US employment report for March, which is due on Friday. The market consensus for Nonfarm Payrolls (NFP) is 60,000 in March. The Unemployment Rate is projected to hold steady at 4.4% during the same period. If the reports show weaker-than-expected outcomes, this could weigh on the US dollar against its rivals. 

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

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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