The U.S. Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, has held steady for a third straight day, trading near a fresh 13‑month high of 101.45 during Asian trading on Wednesday.
The Greenback is gaining momentum amid strong domestic economic data and a complex, mixed geopolitical backdrop. Traders are carefully weighing contradictory signals about a possible U.S.–Iran diplomatic breakthrough. Although President Donald Trump claimed that Iran had “fully and completely” agreed to open its nuclear facilities for inspection, Foreign Minister Abbas Araghchi quickly tempered expectations, noting that substantive nuclear negotiations have not yet begun.
Iran’s chief negotiator warned that the strategic Strait of Hormuz will never revert to its pre‑war conditions and will remain firmly under Iranian control. At the same time, diplomatic efforts showed progress as Washington hosted a new round of talks between Israel and Lebanon, aimed at securing a ceasefire with Iran‑backed Hezbollah.
U.S. data reinforced the narrative of economic exceptionalism, with June’s flash estimate for the S&P Global Composite PMI rising to 52.2, comfortably above May’s 51.5 and indicating robust business expansion.
The manufacturing sector displayed remarkable resilience, with output climbing to 55.7 from May’s 55.1, surpassing forecasts of 54.8. The services PMI rose to 51.3, up from May’s 50.7 and above the consensus estimate of 51.0, underscoring the persistent demand in the broader services economy.
U.S. May personal consumption expenditures (PCE) price index data will take center stage later on Thursday.
According to the CME FedWatch tool, markets adjusted expectations for a more hawkish stance from the Federal Reserve (Fed). Traders are now pricing in a nearly 86.1% chance of a Fed hike in December, up from 61% before last week’s FOMC meeting.
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.
