Key Updates for Thursday, August 21st
US Dollar (USD) is expected to maintain its strength against other currencies as market participants gear up for important economic data releases. Investors are particularly interested in the preliminary manufacturing and services Purchasing Managers’ Index (PMI) data from Germany, the Eurozone, and the UK. Later, the US will release its first weekly unemployment claims, existing home sales data for July, and the same PMI figures.
Minutes from the Federal Reserve’s July meeting indicated that nearly all members agreed on holding policy rates steady. They recognized that it may take some time to better understand how tariffs are impacting inflation.
As of early Thursday, the USD index experienced a rebound of 0.2%, climbing back to around 98.40 after a slight dip the previous day. In other news, US President Donald Trump has urged federal Gov. Lisa Cook to resign following a report suggesting that the Federal Housing and Finance Director asked Attorney General Pam Bondy to investigate Cook’s mortgages. Meanwhile, after mixed trading on Wall Street, the US inventory index was mostly stable during the European morning session.
This Week’s US Dollar Performance
This week, the US dollar has shown some strength against various currencies, particularly the New Zealand dollar. Here’s a quick look at how the USD has fared:
| Currency | USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
|---|---|---|---|---|---|---|---|---|
| USD | 0.74% | 0.83% | 0.27% | 0.45% | 1.40% | 1.82% | 0.09% | |
| EUR | -0.74% | 0.08% | -0.45% | -0.28% | 0.67% | 1.04% | -0.64% | |
| GBP | -0.83% | -0.08% | -0.62% | -0.36% | 0.59% | 0.96% | -0.76% | |
| JPY | -0.27% | 0.45% | 0.62% | 0.19% | 1.13% | 1.56% | -0.19% | |
| CAD | -0.45% | 0.28% | 0.36% | -0.19% | 0.93% | 1.36% | -0.40% | |
| AUD | -1.40% | -0.67% | -0.59% | -1.13% | -0.93% | 0.37% | -1.34% | |
| NZD | -1.82% | -1.04% | -0.96% | -1.56% | -1.36% | -0.37% | -1.73% | |
| CHF | -0.09% | 0.64% | 0.76% | 0.19% | 0.40% | 1.34% | 1.73% |
The table gives a clear picture of how the US dollar is fluctuating against its major counterparts. It’s always interesting to see these shifts, especially if you’re keeping an eye on your own currency needs.
In the Asian session, Australian data indicated that the S&P Global Composite PMI rose to 54.9 in early August, up from 53.8 in July, suggesting that business activities in the private sector are still expanding. Despite a drop of about 0.3% on Wednesday, aud/usd remains under pressure, trading near its lowest point since late June at around 0.6420.
On the other hand, Japan’s Jibun Bank Manufacturing PMI improved slightly from 48.9 in July to 49.9 in August, though the Services PMI dipped from 53.6 to 52.7. As for USD/JPY, it continues to hold above 147.50 during Thursday’s European session.
Meanwhile, GBP/USD hasn’t found support from UK inflation data, closing negatively for three days in a row. Right now, it’s trading below 1.3450.
After two days without change, EUR/USD is also steady this morning, sitting under 1.1650.
As for gold, it gained nearly 1% on Wednesday as US Treasury bond yields fell. Xau/USD is now attempting to maintain its profits, trading below $3,340 early Thursday.
US Dollar FAQ
The US dollar (USD) serves as the official currency of the United States and is widely accepted in many other countries alongside local currencies. In fact, as of 2022, it is the most traded currency globally, making up over 88% of daily forex transactions, approximately $6.6 trillion. The USD became the dominant global reserve currency post-World War II, replacing the British pound, and while it was historically backed by gold, this changed with the Bretton Woods Agreement in 1971.
Monetary policy dictated by the Federal Reserve is the primary factor influencing the US dollar’s value. The Fed aims for price stability and full employment, typically adjusting interest rates as necessary. If inflation exceeds the 2% target, rates may rise, supporting the USD. Conversely, lower interest rates might be employed if inflation falls below target or unemployment increases, which could weigh on the currency.
In extreme situations, the Federal Reserve might opt for quantitative easing (QE), which significantly increases credit flow in the financial system, particularly when banks are hesitant to lend to each other. This approach can weaken the US dollar and was notably utilized during the 2008 financial crisis.
On the flip side, quantitative tightening (QT) is when the Fed stops purchasing bonds and does not reinvest from mature bonds. Generally speaking, QT is favorable for the US dollar.
