The US Dollar Index (DXY), which tracks the US dollar’s value against six key currencies, held steady after dropping 0.5% in the previous session. As of Friday morning in Asia, it’s lingering around 98.30. Traders are currently waiting for the early results of the US S&P Global Purchasing Managers’ Index (PMI), set to be released later today.
On the economic front, the US gross domestic product (GDP) grew by 4.4% in Q3 2025, which is a tiny bit above expectations and higher than the last reading of 4.3%. Additionally, the number of new claims for unemployment insurance was reported at 200,000 last week, falling short of the market’s expectation of 212,000.
For November, the US Personal Consumption Expenditures (PCE) price index saw a year-on-year increase of 2.8%, up from 2.7% in October. Month-over-month, the PCE price index edged up by 0.2%. The Core PCE Price Index, which is the Federal Reserve’s preferred measure of inflation, rose 2.8% in November, aligning with market predictions, following a 2.7% increase recorded in October.
The greenback is facing hurdles, largely due to ongoing geopolitical and trade strains between the US and Europe. President Donald Trump had cautioned several European nations against introducing new tariffs related to a proposed acquisition of Greenland, though he later adjusted his position after reaching a preliminary agreement with NATO regarding a potential deal.
Still, the details of the US-NATO agreement remain murky, with speculation that it could touch on mineral rights and missile placement. Analysts have cautioned that Europe might leverage its substantial investments in US assets now that a Danish pension fund has declared plans to divest from US bonds, adding to the uncertainty in the market.
Regarding monetary policy, the Federal Reserve is largely expected to keep interest rates steady in the upcoming week. The CME FedWatch Tool suggests a 95% likelihood of a rate cut in December.
US Dollar Frequently Asked Questions
The United States Dollar (USD) is the official currency of the US and functions as the unofficial currency in many other nations, circulating alongside local currencies. It is the most traded currency globally, representing more than 88% of the trading volume in foreign currencies, with a daily trading value averaging around $6.6 trillion, based on 2022 figures. After World War II, the USD replaced the British pound as the world’s reserve currency. Historically, the dollar was backed by gold until the gold standard was dropped following the Bretton Woods agreement in 1971.
The primary factor influencing the US dollar’s value is monetary policy set by the Federal Reserve System (Fed). The Fed has two main duties: to maintain price stability (keeping inflation in check) and to encourage full employment. It primarily uses interest rates to achieve these objectives. When inflation exceeds the 2% target, the Fed tends to raise interest rates to bolster the dollar. Conversely, if inflation drops below 2% or if unemployment remains high, the Fed might lower interest rates, which could negatively impact the dollar.
In extreme situations, the Federal Reserve could resort to printing more dollars and implementing quantitative easing (QE). This process involves the Fed substantially increasing credit flow in a lagging financial system, serving as a non-standard approach when credit is tight because banks hesitate to lend. QE typically leads to a weaker dollar and was notably used during the Great Financial Crisis of 2008, where the Fed purchased U.S. Treasuries from financial institutions to inject liquidity.
Quantitative tightening (QT) represents the opposite action, where the Fed halts bond purchases from financial institutions and refrains from reinvesting the principal from maturing bonds. Generally, this process is supportive of a stronger US dollar.
