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US Dollar Index Shows Some Vigour

In the early hours of Wednesday’s Asian session, the US Dollar Index (DXY) gained traction, hovering around 98.40. The cautious mood in the financial markets, alongside geopolitical tensions, provided some support to the index. It rose modestly by 0.11% on the day, stirring interest among traders.

The Impact of Geopolitical Concerns

Geopolitical risks, particularly the ongoing Russia-Ukraine conflict, have bolstered safe-haven flows toward the US Dollar. According to Vassili Serebriakov, FX strategist at UBS in New York, market movements have been predominantly influenced by negative developments outside the US, which have contributed to dollar strength.

Fed Rate Cut Speculations

Despite these gains, the possibility of a Federal Reserve (Fed) rate cut may keep the US Dollar’s upside in check. Money markets are betting on a 91% chance that the Fed will reduce rates by 25 basis points this September. This probability has risen from 85% last week, according to the CME FedWatch tool.

Economic Indicators to Watch

Market players are keenly awaiting the US JOLTS Job Openings and the Fed Beige Book today. The recently released US Nonfarm Payrolls (NFP) data for July revealed a sluggish labour market. Only a limited number of jobs were added, increasing the anticipation of an interest rate cut. This week’s NFP report for August, expected to show 75,000 job additions, will be pivotal.

Trade Uncertainties Loom Large

Additionally, uncertainties surrounding global trade may pressure the DXY. A recent ruling by the US Court of Appeals deemed tariffs imposed unilaterally by former President Trump as illegal. In response, Trump intends to seek an expedited ruling from the Supreme Court.

The US Dollar in Retrospect

Following World War II, the US Dollar supplanted the British Pound as the world’s reserve currency. Initially backed by gold, the Dollar moved away from the Gold Standard with the 1971 Bretton Woods Agreement. It remains the most traded currency globally, accounting for 88% of forex transactions, as noted in data from 2022.

FAQs about the US Dollar

• What is the significance of the US Dollar?
  The Dollar is the US’s official currency and a major global reserve currency.

• What factors influence its value?
  The primary driver is the US Federal Reserve’s monetary policy.

• What role does Quantitative Easing (QE) play?
  QE involves the Fed buying government bonds, potentially weakening the Dollar.

• What about Quantitative Tightening (QT)?
  QT is the reverse of QE and usually strengthens the Dollar.

These financial manoeuvres are vital in understanding the movements of the US Dollar and its future trajectory.