Forex News
OCBC strategists Sim Moh Siong and Christopher Wong note USD/THB has risen over 4% month‑to‑date as markets scaled back expectations for near‑term Fed easing and Oil prices surged, hurting Thailand’s terms of trade. They see the Thai Baht (THB) among the region’s most vulnerable to energy and risk sentiment swings, with USD/THB momentum still bullish despite overbought signals and nearby support at 32.10 and 31.90.
Energy shock weighs on Thai Baht
"USDTHB traded with a firmer bias, tracking the broader rebound in the USD and softer regional risk sentiment."
"In the current environment of softer gold prices alongside oil-driven terms-of-trade shock, firmer USD should tilt near-term risks toward a softer THB."
"This is also in line with our earlier view that THB is likely to be amongst the regional FX worst hit due to sensitivity to shifts in oil prices, global risk sentiment and broad USD direction."
"Overnight development with Strait of Hormuz should provide temporary relief for THB but clearer visibility on the trajectory of energy prices and geopolitical developments is needed for USDTHB to turned lower meaningfully."
"Support at 32.10 levels (200 DMA, 61.8% fibo retracement of Oct high to Feb low), 31.90 (50% fibo)."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- XAU/USD hovers near $5,000 as rising Oil offsets a softer Dollar and yields.
- WTI climbs toward $96 amid Strait of Hormuz disruptions and geopolitical tensions.
- Markets expect the Fed to hold rates, pricing just 25 bps of easing this year.
Gold price consolidates on Tuesday during the North American session around the $5,000 level, down 0.11% amid broad US Dollar weakness and falling US Treasury yields. Higher Crude Oil prices, due to the Middle East conflict entering its third week, pushed bullion prices lower, as sellers eye a test of key support levels. At the time of writing, XAU/USD trades at $4,996.
Bullion stalls despite weaker Dollar and yields, with traders eyeing Fed decision
Bullion prices began the week on a lower note, even though the Iran war entered its third week, with no signs of a de-escalation in the short term. Nevertheless, the rise in Oil prices increased the US Dollar’s safe-haven appeal relative to Gold.
The US Dollar Index (DXY), which measures the Greenback’s value against six peers, is down 0.28% at 99.54. Even though the US Dollar is depreciating, traders have continued to book profits on Gold after the yellow metal spent the first half of March above the $5,000 threshold.
US Treasury bond yields are also falling, with the 10-year T-note yield down nearly two basis points to 4.2%.
Disruptions in the Strait of Hormuz are driving Oil prices higher. So far, Western Texas Intermediate (WTI), the US Crude Oil benchmark, has surged nearly 3% to $96.13 per barrel.
Data-wise, the US economic docket features jobs data, with the ADP Employment Change 4-week average edging lower from 14.75K to 9K. At the same time, Pending Home Sales for February improved sharply following January’s 1% contraction, and rose by 1.8% MoM.
Ahead, traders will eye the Federal Reserve’s monetary policy meeting, which began on Tuesday and is expected to end on Wednesday, with the monetary policy statement and the Summary of Economic Projections (SEP).
Money markets expect the Fed to keep rates unchanged at the March meeting, eyeing just 25 basis points of easing towards the end of the year. Following the Fed’s decision, investors eye the press conference by Federal Reserve Chair Jerome Powell.
In the meantime, fears that inflation would rise due to the Iran war, alongside shipping disruptions in the Strait of Hormuz, prevented central banks from continuing to ease monetary policy.
XAU/USD Price Forecast: Gold tilted downwards, below $5,000
Gold price consolidates at around $5,000 ahead of the Federal Reserve’s meeting, with no signs of extending its gains past the $5,050 mark. On the downside, Bullion’s first key support level is the 50-day Simple Moving Average (SMA) at $4,952 before diving towards the $4,900 mark.
Momentum is tilted bearish, though the Relative Strength Index (RSI) is flattish, an indication of the lack of strength of buyers and sellers.
For a bullish resumption, XAU/USD must clear $5,050, followed by the March 10 daily high of $5,238. A breach of the latter will expose the $5,300 figure, with the next area of interest being $5,419, the March 2 cycle high.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
TD Securities highlights that China’s economy started 2026 on a positive note, led by a rebound in fixed-asset investment driven by quasi-fiscal policy. The team expects Beijing to prioritize growth over inflation as higher Oil prices pose risks, keeping its 4.6% 2026 GDP forecast unchanged while flagging potential US-China tensions if Trump cancels his China trip.
Growth risks from Oil and US-China tensions
"China's economy started on a positive note in the first 2 months of 2026, with the rebound in fixed-asset investment being the biggest surprise in today's report. Quasi-fiscal policy likely drove the rebound in investment figure while China's two-speed economy is still evident as it's mainly manufacturing and exports propelling activity."
"The Middle East conflict presents growth risks as Chinese manufacturers face higher input costs from surging oil prices which may affect output. We expect Beijing to place more emphasis on the growth impact rather than inflation which would put the onus on fiscal policy rather than monetary policy to offset the growth hit."
"We maintain our GDP forecast at 4.6% for 2026 as the growth hit from the oil price shock would likely be evident later in the year and authorities do have the fiscal bandwidth to offset this."
"Trump's FT interview remarks today raised eyebrows on the state of US-China relations. If Trump cancels his China trip, we believe markets are likely to interpret that US-China relations are on a downhill again and US officials may take a more forceful approach (e.g., re-imposition of tariffs) to get China to the negotiating table which may spook markets."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Here is what you need to know for Wednesday, March 18:
The US Dollar (USD) lost its firmness and is now on a two-day losing spree. The Greenback initially fell because investors were cautious over the Middle East war and Wednesday's Federal Reserve (Fed) monetary policy decision. The USD remained under pressure after comments from United States (US) President Donald Trump, who informed us through Truth Social that US NATO allies don’t want to get involved in the US military operation in Iran. He went on to name Japan, Australia and South Korea, claiming the US no longer needs their support.
The US Dollar Index (DXY) is trading near the 99.60 price region, continuing to lose ground as investors part ways with the Greenback amid intensifying conflicts in the Middle East and the upcoming Federal Reserve (Fed) interest rate decision.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.34% | -0.29% | -0.05% | 0.09% | -0.51% | -0.05% | -0.40% | |
| EUR | 0.34% | 0.04% | 0.28% | 0.42% | -0.17% | 0.29% | -0.06% | |
| GBP | 0.29% | -0.04% | 0.28% | 0.38% | -0.20% | 0.24% | -0.10% | |
| JPY | 0.05% | -0.28% | -0.28% | 0.15% | -0.45% | 0.04% | -0.34% | |
| CAD | -0.09% | -0.42% | -0.38% | -0.15% | -0.59% | -0.13% | -0.46% | |
| AUD | 0.51% | 0.17% | 0.20% | 0.45% | 0.59% | 0.46% | 0.10% | |
| NZD | 0.05% | -0.29% | -0.24% | -0.04% | 0.13% | -0.46% | -0.35% | |
| CHF | 0.40% | 0.06% | 0.10% | 0.34% | 0.46% | -0.10% | 0.35% |
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).
EUR/USD is trading near the 1.1530 level, recording little gains throughout the day but is mildly bullish for two days in a row. The German ZEW Economic Sentiment report for March showed sentiment fell to -0.5 from 58.3 in February amid inflation fears. The European Central Bank (ECB) is meeting on Thursday and is expected to maintain interest rates on hold at 2%.
GBP/USD is trading near the 1.3350 price zone, as the Great British Pound (GBP) gains ground for a second consecutive day over a weak USD. The Bank of England (BoE) is expected to deliver a hawkish hold on Thursday.
USD/JPY is trading near the 159.00 level, sliding for a second consecutive day, even as the Japanese Yen (JPY) takes little advantage of the USD's decline.
AUD/USD has surged above the 0.7110 level, almost trimming back all of last week’s losses, even after a split vote in the Reserve Bank of Australia (RBA). The RBA hiked rates by 25 basis points, but the Aussie fell because five of nine voting members favoured the rate hike, while the remaining four were against it.
Oil is trading at $96 per barrel, trimming back almost all of its intraday gains but still capitalizing on the Strait of Hormuz blockage.
Gold is trading at $4,996, little changed throughout the day, as higher US government bond yields are more attractive to investors.
What’s next in the docket:
Wednesday, March 18
- EUR Core Harmonized Index of Consumer Prices (YoY) (Feb)
- USD Producer Price Index (Feb)
- CAD BoC Interest Rate Decision
- US Factory Orders (MoM) (Jan)
- US Fed Interest Rate Decision
- US FOMC Economic Projections
- NZD Gross Domestic Product (YoY) (Q4)
Thursday, March 19
- AUD Employment Change s.a. (Feb)
- JPY BoJ Interest Rate Decision
- UK Employment Change (3M) (Jan)
- UK BoE Interest Rate Decision
- CHF SNB Interest Rate Decision
- EUR ECB Interest Rate Decision
- USD Initial Jobless Claims
- USD Philadelphia Fed Manufacturing Survey (Mar)
- USD New Home Sales Change (MoM) (Jan)
- NZD Westpac Consumer Survey (Q1)
- NZD Trade Balance NZD (YoY) (Feb)
Friday, March 20
- CNY PBoC Interest Rate Decision
- EUR Producer Price Index (YoY) (Feb)
- CAD Retail Sales (MoM) (Jan)
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
- EUR/USD extends gains as the US Dollar weakens ahead of the Fed interest rate decision on Wednesday.
- Fed rate-cut expectations trimmed sharply amid Oil-driven inflation risks.
- ECB faces a difficult trade-off between inflation pressures and slowing growth.
EUR/USD edges higher on Tuesday, extending gains for a second consecutive day as a softer US Dollar (USD) lends support to the Euro (EUR), with market focus gradually shifting from the ongoing US-Iran war to upcoming monetary policy announcements from the Federal Reserve (Fed) and the European Central Bank (ECB). At the time of writing, the pair trades around 1.1546, rebounding from an intraday low near 1.1466.
Meanwhile, the US Dollar Index (DXY), which measures the Greenback's value against a basket of six major currencies, trades near 99.50 after failing to extend gains above the 100 mark earlier in the day.
The Fed is set to announce its interest rate decision on Wednesday, with markets widely expecting the central bank to keep rates unchanged at 3.50%-3.75%. The focus will be on Fed Chair Jerome Powell’s forward guidance, as investors look for clues on how policymakers assess the impact of rising Oil prices on the inflation outlook.
The Fed faces a delicate balancing act, with inflation remaining sticky while higher energy costs pose additional upside risks at a time when the labor market is showing signs of softening. However, traders have sharply scaled back easing expectations, with only around 25 basis points (bps) of rate cuts priced in by year-end, down from earlier expectations of more than 50 bps before the US-Iran war erupted.
According to the CME FedWatch Tool, the Fed is expected to remain on hold through April, June and July. September is currently seen as the most likely timing for a rate cut, with a probability of around 50.8%.
Markets will also watch the updated Summary of Economic Projections (SEP) and the dot plot for signals on the future path of interest rates.
In the Eurozone, the Oil-driven inflation shock is putting the ECB in a difficult position. The central bank will announce its policy decision on Thursday and is also expected to keep all three key interest rates unchanged.
Higher Oil prices could weigh on Eurozone growth, given the region’s heavy reliance on energy imports, while keeping inflation elevated.
Before the conflict, markets expected the ECB to stay on hold through 2026, with officials suggesting policy was in a good place and inflation was under control. However, the outlook has since changed, with traders now pricing in a possible rate hike as early as July.
Investors will also focus on the Eurozone inflation data due on Wednesday, which could offer fresh clues on the ECB’s policy outlook ahead of Thursday’s decision.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
UOB economists Enrico Tanuwidjaja and Sathit Talaengsatya assess how higher global Oil and gas prices are shifting Thailand from a low-inflation backdrop into a cost-shock environment. They keep 2026 baseline GDP at 1.8% and headline CPI at -0.3% but outline scenarios where Dubai Oil at USD80–100/bbl softens growth and lifts inflation.
Oil-driven trade-off for growth and prices
"Thailand has moved from a pure low-inflation story back into an energy-shock environment. The immediate effect is higher headline inflation, but the bigger macro question is how long domestic prices can stay insulated from the rise in global oil and gas prices."
"Thailand entered the latest energy shock with growth below potential and inflation still unusually soft. That starting point matters. The current episode should be read as an external cost shock rather than a sign of overheating."
"At this stage, we keep our 2026 baseline unchanged at 1.8% real GDP growth and -0.3% average headline CPI. That said, if geopolitical tensions stay elevated for longer, or if domestic price pass-through accelerates more than expected, we will reassess the forecast."
"In our working scenarios, Dubai oil in the USD80–100/bbl range would likely push Thai diesel prices higher over time, even with continued policy cushioning, while headline inflation rises faster than core and growth softens as households and firms absorb higher energy costs."
"All in all, Thailand can cushion an oil shock, but it cannot fully suppress a large and prolonged one. The near-term story is still about smoothing. The medium-term story is about pass-through."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Commerzbank’s Michael Pfister and Norman Liebke argue that, after strong gains versus the Dollar, the Brazilian Real faces more downside risks than the Mexican Peso. A deeper BCB rate-cut cycle, softer Brazilian growth, election-related uncertainty and potential challenges to central bank independence contrast with more cautious Banxico easing and possible support from a favourable USMCA outcome for Mexico.
Diverging policy cycles and political risks
"For the coming months, there are several reasons why we expect the Mexican peso to continue catching up against the Brazilian real:"
"While the Banco Central do Brasil (BCB) is likely to cut its interest rates by well over 100 basis points this year—marking the start of its rate cut cycle—the Banco de México (Banxico) will probably implement only two to three rate cuts, with the cycle nearing completion."
"The interest rate differential is therefore likely to narrow in a direction that is bad for the real."
"Cooling the real economy was certainly also the goal of the sharp interest rate hikes, but now that this has been achieved, it also increases the likelihood of rate cuts by the BCB."
"If an extension is granted, it could trigger a small surge of euphoria for the peso."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- The US Dollar Index slipped again on Tuesday, failing to reclaim the 100.00 level after forming a two-bar reversal pattern at ten-month highs.
- The Federal Reserve is almost certain to hold rates on Wednesday, but the updated dot plot carries significant risk for the greenback's near-term direction.
- Rate cut expectations have been heavily repriced since the Iran conflict began, and markets now price in just one 25bps cut in December 2026.
The US Dollar Index (DXY) eased around 0.20% on Tuesday, slipping back toward the 99.50–99.60 area after a failed attempt to recapture the psychologically significant 100.00 handle. It was the second straight session of softness following last week's surge to ten-month highs near 100.54, a move driven by a combination of safe-haven demand from the US-Israel war on Iran, a sharp repricing of Federal Reserve (Fed) rate cut expectations, and the resulting spike in Oil prices. With the Fed's two-day meeting now underway and the policy statement due at 18:00 GMT on Wednesday, traders are in wait-and-see mode, keeping a lid on fresh directional moves in the greenback.
100.00: The new interim key battleground
The technical picture has shifted subtly but meaningfully over the past two sessions. The DXY tagged a cycle high above 100.50 last week before rolling over in a two-bar reversal formation around the 100 handle, a pattern that typically signals exhaustion of the prevailing trend. Tuesday's inability to reclaim 100.00 reinforces that dynamic.
FOMC: The dot plot is the real trade
The rate decision itself is a non-event; CME FedWatch assigns a 94% probability to an unchanged outcome. What matters is Wednesday's updated Summary of Economic Projections (SEP) and the dot plot, which will be the first since the start of the Iran conflict, Crude Oil at uncomfortable highs, and the knock-on implications for inflation. Prior to the conflict, the median dot had pencilled in one 25bps cut for 2026. There is now a credible risk that the Fed removes even that solitary cut from its projections, effectively sending a zero-cuts signal for the year. That outcome would be unambiguously bullish for the US Dollar, and given current positioning, it could trigger a sharp re-extension toward and through 100.00. Conversely, if Powell's language leans toward patience rather than hawkishness, or the dot plot holds at one cut, the DXY could extend its current pullback toward the 99.00–99.44 support zone. Goldman Sachs has already pushed its next cut call out to September, while fed funds futures are pricing the first reduction no earlier than December.
Rate cut expectations gutted by Iran and Oil
The scale of the repricing in rate expectations since the conflict began has been the dominant driver of Dollar strength this month. Before the US and Israeli strikes on Iran on February 28, markets were pricing a June cut as the base case, with a reasonable probability of a second move in September. That entire easing trajectory has since been wiped from the curve. The dynamic is straightforward: Oil above $100 per barrel raises near-term inflation expectations, reduces the Fed's room to cut, and pushes real yields higher — all of which support the US Dollar on a rate differential basis. The Reserve Bank of Australia (RBA) underscored this global dynamic overnight, delivering an unexpected rate hike citing energy-driven inflation pressure. It was the first Group of Ten (G10) central bank to move in response to the Oil shock, and it sets a hawkish baseline ahead of this week's Fed and European Central Bank (ECB) decisions.
Dollar softness: Temporary or trend?
The near-term bias for the DXY remains cautiously bullish: Dips have attracted buyers given the geopolitical backdrop, as has the "higher for longer" rate narrative. However, Tuesday's price action is a reminder that the 100.00 level is sticky resistance, not a platform. All eyes now turn to Chair Jerome Powell's press conference at 18:30 GMT on Wednesday, where his framing of the inflation-versus-growth trade-off in the context of the Iran war will set the Dollar's direction for the remainder of the quarter.
US Dollar Index daily chart
Technical Analysis
In the daily chart, the Dollar Index Spot trades at 99.62. The near-term bias is cautiously bullish as price holds above the rising 50-day exponential moving average while remaining capped beneath the gently declining 200-day average, signalling an emerging recovery within a broader range. Momentum firms, with the stochastic oscillator pushing into overbought territory and sustaining elevated readings, highlighting persistent buying pressure rather than a brief spike.
Initial resistance emerges at the recent 100.50 high, where a daily close above would open the way toward the 200-day EMA near 99.45 and then the 101.00 region. On the downside, immediate support aligns with the 50-day EMA around 98.40, with a break exposing secondary support at 97.80 and then the late-month lows near 96.85. As long as price holds above the 50-day average, pullbacks are likely to be treated as corrective within the budding upside phase.
(The technical analysis of this story was written with the help of an AI tool.)
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.
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