Forex Today: USD consolidates weekly gains as markets keep a close eye on geopolitics

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.62%	1.04%	1.57%	0.53%	-0.01%	0.77%	0.52%
EUR	-0.62%		0.42%	0.95%	-0.09%	-0.64%	0.15%	-0.10%
GBP	-1.04%	-0.42%		0.27%	-0.50%	-1.05%	-0.27%	-0.52%
JPY	-1.57%	-0.95%	-0.27%		-1.03%	-1.54%	-0.79%	-1.00%
CAD	-0.53%	0.09%	0.50%	1.03%		-0.58%	0.25%	-0.02%
AUD	0.00%	0.64%	1.05%	1.54%	0.58%		0.80%	0.54%
NZD	-0.77%	-0.15%	0.27%	0.79%	-0.25%	-0.80%		-0.25%
CHF	-0.52%	0.10%	0.52%	1.00%	0.02%	-0.54%	0.25%

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).

The Fed's publication showed that the Committee made it clear that it is not operating with a one-way bias. According to the document, several policymakers noted that they would have supported describing future decisions in more two-sided terms, reflecting the possibility that hikes could be appropriate if inflation remained above target. Commenting on FOMC Minutes, "the policy signal from the Fed minutes appeared hawkish despite the presence of dissent, anchoring near term US Dollar sentiment," said MUFG’s Senior Currency Analyst Lloyd Chan. The USD Index gained more than 0.5% on Wednesday and touched its highest level in over a week near 97.80 in the early Asian session on Thursday. At the time of press, the USD Index was moving sideways near 97.70, staying virtually unchanged on the day.

CBS News reported early Thursday that the US military is ready for possible strikes on Iran as soon as Saturday. Citing sources familiar with the matter, the news outlet said that the USS Abraham Lincoln aircraft carrier group and its flotilla of warships are already in the region, and the USS Gerald Ford, a second carrier group, is en route to the Middle East. Gold benefits from escalating geopolitical tensions and trades in positive territory above $5,000.

The data from Australia showed early Thursday that the Unemployment Rate remained unchanged at 4.1% in January. This print came in better than the market expectation of 4.2%. In this period, Employment Change was +17.8K, slightly weaker than analysts' estimate of +20K. AUD/USD gains traction on Thursday and trades in positive territory above 0.7050.

Reserve Bank of New Zealand’s (RBNZ) new Governor Anna Breman said on Thursday that if the outlook for inflation changes, committee will adjust policy stance to ensure inflation returns to target. After losing more than 1% on Wednesday, NZD/USD stages a rebound and trades near 0.5980, rising more than 0.3% on the day.

Pressured by the renewed USD strength, EUR/USD turned south in the American session on Wednesday and lost about 0.6% on the day. The pair corrects higher early Thursday and trades near 1.1800.

GBP/USD fell more than 0.5% on Wednesday and closed the third consecutive day in negative territory. After touching its lowest level in four weeks at 1.3480 in the Asian session, the pair managed to recover to the 1.3500 region by the European morning on Thursday.

USD/JPY continues to edge higher and trades near 155.00 after rising nearly 1% on Wednesday.

US Dollar FAQs

What is the US Dollar?

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.

How do the decisions of the Federal Reserve impact the US Dollar?

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.

What is Quantitative Easing and how does it influence the US Dollar?

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.

What is Quantitative Tightening and how does it influence the 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.