US Dollar Index holds below 105.00 as traders await US CPI inflation data


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  • The US
    Dollar
    Index (DXY)
    loses
    ground
    near
    104.95

  • Fed
    rate
    cut
    bets
    continue
    to
    undermine
    the
    DXY. 

  • The
    cautious
    mood
    and
    safe-haven
    flows
    might
    cap
    the
    USD
    Index’s
    downside. 

The US
Dollar
Index (DXY)
trades
in
negative
territory
for
the
second
consecutive
day
around
104.95
during
the
Asian
session
on
Thursday.
The
DXY
edges
lower
despite
the
cautious
stance
of
the
US
Federal
Reserve
(Fed)
Chair
Jerome
Powell.
Investors
will
watch
the
US
June
Consumer
Price
Index
(CPI)
inflation
data
for
fresh
impetus,
along
with
the
weekly
Initial
Jobless
Claims
and
speeches
by
the
Federal
Reserve’s
(Fed)

Raphael
Bostic

Fed’s
Powell
said
on
Wednesday
before
the
US
House
Financial
Services
Committee
that
the
US
central
bank
will
make
interest
rate
decisions
based
on
the
data,
the
incoming
data,
the
evolving

outlook
,
and
the
balance
of
risks,
and
not
in
consideration
of
political
factors. Powell
added
that
it
would
not
be
appropriate
to
cut
the
policy
rate
until
they
gain
greater
confidence
in
inflation
heading
sustainably
towards
the
Fed’s
2%
target. 

Meanwhile,
Fed
Governor
Lisa
Cook
said
on
Thursday
that
US
inflation
should
continue
to
fall
without
a
significant
further
rise
in
the
Unemployment
Rate.
The
Fed’s
cautious
stance
failed
to
boost
the
Greenback
as
traders
await
the
US
key
inflation
report,
which
is
due
on
Thursday.
The
US

CPI

is
expected
to
show
an
increase
of
3.1%
YoY
in
June,
while
core
inflation
is
forecast
to
remain
steady
at
3.4%
YoY. 

In
case
the
report
shows
softer-than-expected
inflation
readings,
this
could
further
weigh
on
the
DXY.
The
markets
have
priced
in
less
than
10%
odds
of
a
Fed
July
rate
cut,
while
the
expectation
for
a
September
cut
stood
at
73%,
according
to
the
CME
FedWatch
Tool.

On
the
other
hand,
the
risk-off
mood
ahead
of
the
key

economic
data
,
along
with
the
political
uncertainties
in
Europe
and
geopolitical
risks
in
the
Middle
East
might
provide
some
support
to
the
safe-haven
US
Dollar. 

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.