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Forex News

News source: FXStreet
Aug 26, 06:02 HKT
Mexican Peso holds below 16.95 as traders eye US data, Iran shift
  • USD/MXN holds below 16.95 as Peso stays firm.
  • Mexico current-account surplus supports Peso near decade highs.
  • Core PCE and Warsh speech may reset Fed expectations.

The Mexican Peso holds firm near 10-year highs against the US Dollar on Tuesday, as the USD/MXN pair sits below the 16.95 level while investors digest US economic data and recent developments between the US and Iran. The exotic pair trades at 16.94, virtually unchanged.

USD/MXN steadies near decade low as traders await Core PCE

The emerging market currency was subdued on Tuesday, failing to capitalise on falling US Treasury yields, which dragged the Greenback lower. The US Dollar Index (DXY), which measures the buck’s performance against a basket of six currencies, loses 0.08%, down to 98.90.

In Mexico, the current account recorded a $8.9 billion surplus in Q2 2026. The account rebounded from a revised deficit of $18.23 billion of US Dollars in the first quarter.

Another reason that capped the USD/MXN downtrend was geopolitics. The US Secretary of State Marco Rubio said to foreign counterparts that the US is shifting from strikes to sanctions on Iran that for the time being, the US is not expected to initiate new strikes against Iran, according to sources cited by Axios.

US data revealed that the Conference Board (CB) Consumer Confidence index missed estimates, but showed that households' views of current business conditions improved modestly in August, while they also see an improvement in the jobs market. US housing data showed that Building Permits in July improved, while the ADP Employment Change 4-week average crushed the previous week's print, indicating the strength of the jobs market.

Boston Fed President Susan Collins adopted a hawkish tone, emphasising that inflation remains excessively high. Nevertheless, she observed that the economy continues to expand at a near-trend pace and acknowledged that the labour market remains consistent with full employment.

Eyes focus on the Federal Reserve’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, before Fed Chair Kevin Warsh’s speech at Jackson Hole. The US schedule includes Durable Goods Orders, GDP figures, and Initial Jobless Claims.

USD/MXN Price Forecast: Technical Outlook

Chart Analysis USD/MXN
USD/MXN daily chart

In the daily chart, USD/MXN trades at 16.9481, keeping a bearish near-term tone as spot holds below the clustered simple moving averages (SMA) around 17.3288 and under the shorter-term descending trend line resistance near 17.3594. This configuration suggests rallies remain capped within a broader downtrend, while the Relative Strength Index (14) hovering near 31 hints at oversold conditions that could slow the pace of further losses rather than signal an immediate reversal.

On the topside, initial resistance is seen at the SMA cluster around 17.33, followed by the descending trend line barrier near 17.36, where sellers are likely to re-emerge if the pair attempts a corrective bounce. On the downside, the day’s open at 16.95 acts as the first pivot support, with a more significant structural floor coming in at the longer-term descending trend line break level around 15.49, which would only come into view if bearish pressure extends materially in the sessions ahead.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

Aug 26, 05:54 HKT
Thai Baht: Bullish bias against US Dollar faces BoT sensitivity – OCBC

OCBC’s Sim Moh Siong and Christopher Wong highlight that Thai Baht (THB) has rallied to a two‑month high on softer US Dollar (USD), lower Oil prices, strong electronics exports and Gold-related flows. However, with USD/THB nearing oversold conditions and the Bank of Thailand (BoT) meeting approaching, policymakers’ sensitivity to excessive currency strength may limit further appreciation in the near term.

Baht strength meets policy caution

"THB extended gains towards a two-month high yesterday, supported by a softer USD and some relief from lower oil prices."

"The renewed rally in gold also provided support at the margin given Thailand’s sizeable domestic gold market, while strength in electronics exports remains a modest positive for THB."

"That said, we would be cautious about attributing too much of the recent THB strength to the tech cycle."

"Focus this week turns to the BoT meeting (Wed). After the recent THB gains, softer domestic growth and policymakers’ sensitivity towards excessive currency strength may limit the extent of further appreciation in the near term."

"Bearish momentum on daily chart intact but RSI is near oversold conditions. Some consolidation not ruled out in the interim. Resistance at 32.87 (100 DMA), 33.14 (23.6% fibo retracement of 2026 low to high). Support at 32.30/35 levels (200 DMA, 50% fibo)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Aug 26, 05:21 HKT
Chinese Yuan: Bullish bias with focus on 6.7000 against US Dollar – UOB

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann maintain a negative stance on USD/CNH, noting a softened underlying tone even as recent price action stayed relatively quiet. Intraday, they see scope for a modest drift lower while keeping 6.7150 as key support. Over the next 1–3 weeks, a sustained break below 6.7200 would open the way toward 6.7000, provided resistance at 6.7340 holds.

Soft tone with key support in view

"24-HOUR VIEW: While we indicated yesterday that “the bias for USD is tilted to the downside,” we highlighted that “any decline is likely part of a lower range of 6.7150/6.7240.” However, USD traded between 6.7181 and 6.7255 before closing marginally higher by 0.01% at 6.7220. Despite the relatively quiet price action, the underlying tone appears to have softened. Today, USD could edge lower, but the 6.7150 support is unlikely to come under threat. Resistance is at 6.7240, followed by 6.7280."

"1-3 WEEKS VIEW: We have held a negative USD view since early this month (as annotated in the chart below). Last Friday (21 Aug, spot at 6.7240), we highlighted that “downward momentum continues to increase, and looking ahead, if USD breaks and holds below 6.7200, the next level to watch is 6.7000.” While USD dipped below 6.7200, it did not close below this level. For the time being, we will continue to hold the same view as long as 6.7340 (no change in ‘strong resistance’) is not breached."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Aug 26, 04:54 HKT
New Zealand Dollar climbs to fresh highs amid timid US Dollar
  • NZD/USD extended its rally to fresh multi-month highs, buoyed by a weak US Dollar.
  • Expectations that the RBNZ could raise rates again as soon as September continue to underpin the Kiwi.
  • Traders now look to US PCE and second-quarter GDP on Wednesday and Fed Chair Warsh at Jackson Hole on Friday.

NZD/USD climbed to around 0.5980 Tuesday, near its highest level since June 1 as a softer US Dollar (USD) and firm Reserve Bank of New Zealand (RBNZ) rate-hike expectations powered the Kiwi higher.

The Greenback stayed on the back foot, weighed down by the US Treasury's plan to expand its buyback of longer-dated bonds. US Secretary Scott Bessent is able to tap up to $1 trillion from the Treasury General Account to fund the purchases, according to related reports.

The scheme has pressured US yields, and an earlier safe-haven bid tied to Middle East tensions faded as the US declared the Strait of Hormuz free of mines. Federal Reserve (Fed) Chair Kevin Warsh's address at the Jackson Hole symposium is on Friday.

Chart Analysis NZD/USD


Short-term technical analysis:

On the 4-hour chart, NZD/USD trades at 0.5977, holding a bullish near-term bias as it consolidates above both the 20-period Simple Moving Average (SMA) near 0.5967 and the 100-period SMA around 0.5900. The pair is pressing just under immediate horizontal resistance at 0.5983, while the Relative Strength Index (RSI) near 62 suggests constructive but not yet overbought momentum, hinting that dips may continue to attract buyers while this short-term structure holds.

On the topside, a clear break above 0.5983 would open the way for further gains, with any move beyond that level facing only distant resistance far above the current market. On the downside, initial support is seen at 0.5971, followed by the 20-period SMA clustered with horizontal support at 0.5967–0.5965, while a deeper pullback could retest 0.5944 before the broader uptrend context anchored by the 100-period SMA at 0.5900 comes into play.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Aug 26, 04:40 HKT
Singapore Dollar: Range-bound consolidation outlook against US Dollar – Commerzbank

Commerzbank’s Charlie Lay and Dr. Henry Hao note that USD/SGD has eased from 1.2800 to around 1.2700 as the softer US Dollar (USD) and global risk sentiment dominate. With July core inflation in Singapore rising but still contained, Monetary Authority of Singapore (MAS) is seen under little pressure to tighten further. They expect USD/SGD to consolidate within a defined range in coming sessions.

Dollar pair seen consolidating in range

"The softer-than-expected reading reduces the urgency for further tightening by MAS, particularly after the back-to-back steepening of the SGD NEER appreciation slope in April and July."

"With underlying inflation momentum still under control, MAS has room to stay on hold at its next review in October unless price pressures broaden materially."

"For USD/SGD, it held steady yesterday at around 1.2700."

"USD/SGD is likely to remain driven primarily by the broader USD and global risk sentiment, rather than expectations of further MAS tightening."

"We look for near-term consolidation between 1.2650-1.2800."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Aug 26, 04:15 HKT
US-Iran agree ceasefire deal, sinks Oil – RIA Novosti

The Russian agency RIA Novosti reported on Tuesday that Washington and Tehran agreed to a ceasefire, citing sources in Iran and Pakistan.

The agreement includes free navigation in the Strait of Hormuz, and it is expected to be announced in the coming days. Besides the reopening of Hormuz, the deal includes renewed negotiations under the Islamabad Memorandum of Understanding (MoU)

Market’s reaction

Oil prices extended their losses, with both the international crude benchmark, Brent, diving close to 5.50%, while West Texas Intermediate (WTI), the US crude Oil benchmark, diving more than 5%.

WTI & Brent daily charts

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.

Aug 26, 03:54 HKT
US Treasury yields fall as Hormuz progress eases inflation fears
  • Two-year and ten-year yields fall as Oil prices tumble.
  • Hormuz de-escalation hopes ease energy-driven inflation concerns.
  • Core PCE and Warsh speech could reset Fed expectations.

US yields edge lower across the whole curve on Tuesday, following suit. Oil prices are pressured lower as positive developments in the Middle East seem to ease inflationary pressures, while market participants digest the implications of the US Treasury Department's decision to extend the bond buyback program to curb the US 30-year yield.

US yields decline as Oil drops and traders await Core PCE

Oil prices tumbled more than 3% on Tuesday after the US Treasury imposed sanctions on 60 entities linked to Iran on Monday. 

However, recent developments in the Middle East include the Pakistan Army Chief Munir conveying an offer from the US to Iran that includes halting the blockade in the Strait of Hormuz in exchange for opening the Strait and stopping proxy attacks, Al Arabiya/Al Hadath sources report. Iran denied those claims, adding that Munir was seeking to open the space for further negotiations and to convey Iran’s conditions and positions to the US.

The White House announced the removal of mines in the Strait of Hormuz, which was confirmed by two US officials, as reported by Axios.

Aside from this, the US economic docket showed the jobs market remains solid, after the ADP Employment Change 4-week average improved sharply. At the same time, US Building Permits in July showed an improvement, while US households grew less confident regarding the financial and economic conditions in the country

Now eyes shift to the release of the Federal Reserve’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, on Wednesday. Alongside this, traders are looking for jobs and growth data, and the speech of the Fed Chair, Kevin Warsh.

The US 2-year T-note yield tumbles nearly five basis points at 4.193%, while the US 10-year benchmark note drops six basis points at 4.635%.

US 10-year Treasury note daily chart

US 10-year Treasury yield chart

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Aug 26, 03:54 HKT
South Korean Won: Strength backed by tech flows against US Dollar – Societe Generale

Societe Generale analysts highlight that the Korean Won (KRW) has gained 12% versus the Dollar year-to-date, with USD/KRW falling from around 1560 in June to below 1380. They argue the move looks stretched but is supported by AI and semiconductor optimism and large buyback-related Dollar selling, keeping USD/KRW a tactical sell on rallies with additional support from expected month-end exporter flows.

Tactical sell on rallies

"The KRW was one of the key beneficiaries in Asia of the "sell USD" theme post Liberation Day tariffs in 2Q25 when markets aggressively repriced US exceptionalism and USD/KRW retreated to 1350."

"In Asia, the KRW continues to lead performance among major Asian currencies, climbing 12% vs USD on a spot basis YTD."

"The move in USD/KRW from around 1560 in early June to below 1380 appears stretched but illustrates enthusiasm surrounding the AI and semiconductor sectors."

"Following the SK Hynix ADR-related dollar inflows in July, fresh support has emerged via sizeable buyback announcements from Samsung ($80bn) and SK Hynix ($28bn), with associated won conversion flows potentially generating additional dollar selling."

"USD/KRW remains a tactical sell on rallies in our view, boosted by anticipated month-end exporter dollar sales."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Aug 26, 03:23 HKT
Chinese Yuan: Trade risks limit gains against US Dollar – OCBC

OCBC’s Sim Moh Siong and Christopher Wong note that reports of potential US tariffs on Chinese goods and the PBoC’s resistance to rapid Renminbi (RMB) gains are likely to limit further downside in USD/CNH. While the broader RMB appreciation bias remains intact, the pair trades near recent lows and mild bearish momentum is showing tentative signs of turning higher.

RMB gains face tariff uncertainty

"Reports that the US is considering a 7.5% tariff on Chinese goods may add some uncertainty ahead of next month’s Trump–Xi meeting."

"For now, the RMB reaction has been limited so far, with USD/CNH still trading close to recent lows, suggesting markets do not see this as a major escalation risk at this stage."

"Separately, the PBoC was already leaning against the pace of RMB gains, with Monday’s fixing around 600 pips above market expectations."

"With the USD also firmer overnight, further gains for RMB may be more limited even if the broader RMB appreciation bias remains intact."

"Mild bearish momentum on daily chart intact though RSI is showing tentative signs of turning higher from oversold conditions. Modest rebound not ruled out. Resistance at 6.74, 6.7460 (21 DMA). Support at 6.72, 6.70 levels."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Aug 26, 02:53 HKT
The US Dollar Index stops paying for hawks who cannot vote
  • DXY trades just under the 99.00 handle, capped by a 200-day EMA near 99.50.
  • American session holds a band under a tenth of a point since 13:00 GMT.
  • Fed chair keynote and the payrolls benchmark revision share 14:00 GMT on Friday.

A non-voting regional Federal Reserve president published a conditional hold on Tuesday, tying the current target range to continued evidence that inflation is actually coming down, and the Dollar Index has not moved for it. The index trades just beneath the 99.00 handle after a European morning high a shade above it, and the American session band since 13:00 GMT runs less than a tenth of a point wide. That is less a market waiting for a catalyst than a market that has stopped paying for speeches.

The hawks with microphones do not hold votes

Boston and Richmond both rotated off the Federal Open Market Committee (FOMC) in January, which makes Tuesday's remarks and the second regional address scheduled for 20:00 GMT commentary rather than count. The four regional presidents who do hold votes this year sit in Cleveland, Philadelphia, Dallas and Minneapolis, and three of the four already dissented for a quarter point on July 29.

The minutes released last week widened the chorus without widening the tally. Several participants recorded themselves ready to tighten, some doubted that financial conditions were restrictive enough to finish the job, and two presidents who held no vote in July said afterwards that they would have joined the dissent. The ladder of stated hawkishness keeps climbing while the count underneath it stays 9-3.

A market that has watched this sequence run since June now prices the gap between a stated preference and a recorded vote at close to nothing. That is the mechanism behind Tuesday's flat tape, and it is why the speaking calendar has stopped functioning as a Dollar input.

The front end has been moving the other way

Futures put a September increase near one chance in three, down from roughly two thirds in the days after the July meeting. The path down ran through a payrolls contraction, a cooler inflation print and a retail sales miss, which is to say through the data rather than through the podium. Pricing and rhetoric have been moving in opposite directions for three weeks, and the exchange rate has followed the pricing.

Tuesday's own releases pulled the same way as that pricing rather than the podium, with new home sales down 10.5% MoM in July to an annual rate near 607K and inventory rising toward 488K units. Consumer confidence eased to 89.4 in August as the expectations index dropped to 68.2, well beneath the 80 line conventionally read as a recession signal. Neither number argues for a tighter policy setting.

Long-end yields sit close to where they stood before last week's Treasury buyback announcement, the 10-year around 4.70% and the 30-year around 5.25%, so the Dollar is not being sold on a funding scare either. It is being sold because the marginal reason to own it has been repriced away, one release at a time.

An economic D-Day the Dollar declined to buy

The Treasury Secretary spent Monday unveiling what had been trailed for a week as an economic D-Day for Iran, then conceded that the package withholds the secondary measures aimed at third countries and described it as a warning shot. Tehran's state Strait authority answered by warning that vessels breaching its transit rules face fines, seizure or confiscation, and Oman's foreign minister travelled to Tehran on Tuesday to work the only channel either side still uses.

Escalation of exactly this shape bought Dollars in June, when a shut Strait read as a haven bid and a growth tax on everyone outside the United States. The formal truce mechanism has since lapsed with the 60-day window missed on both sides, Brent trades near $93.00, and the index has spent the week beneath both of its major moving averages anyway. A war premium that no longer reaches the exchange rate is not a war premium.

Wednesday's inflation test and Friday's collision

Wednesday's 12:30 GMT block carries the Personal Consumption Expenditures (PCE) price index for July, with core seen at 0.2% MoM and 3.3% YoY. An in-line print would leave core unchanged on the year and deliver none of the progress that Tuesday's conditional hold demanded. The same block brings the second cut of second-quarter Gross Domestic Product (GDP), expected to confirm 1.5% annualised growth beside a 6.3% GDP price index, and initial claims follow on Thursday with 208K forecast against 206K.

Friday is where the week actually resolves, because the chair's first Jackson Hole keynote and the preliminary annual benchmark revision to nonfarm payrolls are both scheduled for 14:00 GMT, nineteen days ahead of the September decision. Last year's preliminary revision cut 911K from the March level. A figure of that order would restate the labour market on which every hold this year has rested, in the same minute the chair is speaking about the framework.

Levels

Resistance: The 200-day Exponential Moving Average (EMA) near 99.50 has capped every attempt since last week's break and Tuesday's high did not come close to testing it. Above that the 50-day EMA sits on the 100.00 handle, which stacks two obstacles inside half a point of each other and makes the 99.50 to 100.00 band the entire bull case.

Support: The 99.00 handle is giving way intraday, leaving last week's low just above 98.50 as the first real shelf, with the daily Stochastic Relative Strength Index (Stoch RSI) near 21 and the 5-minute reading beneath 20. Oversold on both frames without a bounce is a statement about who is left to buy, and the May low just under 98.00 is the only structure below that shelf.

Bias: Bearish while the 99.50 area caps, selling rallies into it with objectives at 98.50 and then the 98.00 handle. Invalidation is a daily close back above 100.00, which would reclaim both moving averages at once and hand the September hawks a price to point at.


Dollar Index daily chart

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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