The US Dollar (USD) remained resilient against other major currencies on Wednesday after posting marginal gains on Tuesday. The economic calendar for the US included weekly MBA Mortgage Applications and Wholesale Inventories for March, with investors also closely watching comments from Federal Reserve (Fed) policymakers. Later in the day, the US Treasury was set to hold a 10-year note auction.
The USD found demand in the second half of Tuesday following mixed action in Wall Street and hawkish remarks from Minneapolis Federal Reserve President Neel Kashkari. The USD Index continued to edge higher in the Asian session on Wednesday, rising nearly 0.2% to above 105.50. In the European morning, US stock index futures traded lower, and the benchmark 10-year US Treasury bond yield clung to small gains while remaining below 4.5%.
The US Dollar showed strength against other major currencies this week, with the Euro being the weakest among them. The heat map displayed the percentage changes of the major currencies against each other, reflecting the relative strength of the USD and its rivals. The Bank of Japan (BoJ) Governor Kazuo Ueda mentioned that monetary policy aimed at impacting inflation rather than the exchange rate of the Japanese Yen, with USD/JPY continuing to edge higher despite his comments. The USD/JPY pair was trading above 155.00.
Meanwhile, the EUR/USD pair closed in negative territory on Tuesday, ending a four-day winning streak. The pair continued to trade below 1.0750 early on Wednesday. GBP/USD fell nearly 0.5% on Tuesday, dropping below 1.2500 midweek. The Bank of England was set to announce monetary policy decisions on Thursday. Gold struggled to build on Monday’s gains, closing below $2,320 on Tuesday, while XAU/USD remained quiet near the previous closing level.
The Australian Dollar faced bearish pressure on Tuesday after the Reserve Bank of Australia (RBA) adopted a cautious tone on further tightening policies. As policy settings remained unchanged, the AUD/USD pair extended its losses below 0.6600 on Wednesday. The Fed plays a crucial role in shaping US monetary policy, with two mandates of achieving price stability and fostering full employment. Adjusting interest rates is the primary tool used by the Fed to achieve these goals, influencing the strength of the USD. With eight policy meetings held annually, the Federal Open Market Committee (FOMC) assesses economic conditions and makes policy decisions.
During extreme situations, the Federal Reserve may resort to Quantitative Easing (QE) to increase credit flow in the financial system, printing more Dollars to buy high-grade bonds. This policy weakens the USD and was used during the Great Financial Crisis in 2008. On the other hand, Quantitative Tightening (QT) is the reverse process of QE, with the Fed selling bonds. This policy is typically positive for the value of the US Dollar. The Fed’s actions and policies have a significant impact on the USD and global financial markets.
