HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

Regulators Affecting the US Dollar


The value of the US Dollar can be affected by a number of different factors, such as the Central Regulator, also known as The Federal Reserve. The Central Bank and it’s monetary policy is known to have one of the largest effects on the exchange rate of the US Dollar and are entrusted with the stability of its price in accordance to the needs of the economy. Due to its importance and relation with the price movement of the Dollar, the market spends a large part of their fundamental analysis based around the Central Bank and its main figures. As part of this blog we will look at the relationship between the “Fed” and the Dollar, as well as the latest developments. 

In the first part of this year the US Dollar has had a strong recovery after a largely bearish year. However, the US Dollar over the month of April has increasingly declined, even while taking into account the growing economy and improved employment figures released in the first week of April. For this reason, a lot of traders have been wondering why the US Dollar has decreased up to 2.75% this month alone. The price movement has many factors, some merely technical, however, largely the price movement has been affected by the stance of the Federal Reserve as well as comments made by the chairman. 

The US Dollar is mainly priced based on supply and demand. The Federal Reserve is in charge of the supply of Dollars, and hence again is massively influential power. The Fed creates money through open market operations, i.e. purchasing securities in the market using new money, or by creating bank reserves issued to commercial banks. Bank reserves are then multiplied through fractional reserve banking, where banks can lend a portion of the deposits they have on hand.

In addition to the supply, the Regulator can also affect the demand of the US Dollar through: one interest rates, two comments regarding current and future economic conditions and lastly the bank’s Quantitative Easing programs. Why can comments which have no direct physical correlation with the US Dollar have an effect on the exchange rate? Firstly, investors tend to look for a stable economy and political system, comments made by the Chairman of the Bank regarding the economic stability can persuade investors and result in large market players steering clear. 

How can interest rates affect the Dollar, or even simply just comments made regarding interest rates? Firstly, interest rates are used to control inflation and economic activity. Positive interest rates signal to investors that the economy is growing and stable. This is the first and easiest effect to understand as a beginner. Secondly, when interest rates are higher it results in investors to more likely receive higher returns on their investments within the US banking system. This results in more individuals, companies, banks and governments buying Dollars and overall increasing the level of demand. 

So, where are interest rates currently at, and what is the Federal Reserve currently advising? 

Currently, interest rates in the US are just above zero at 0.25% and they have been since the uncertainties brought about by COVID-19. The low interest rates have not necessarily been a significant strain so far as the majority of central banks around the world have also done the same. Whereas if the US was the only country, then yes this would significantly dampen demand. It should be noted that normally in the past the rate has been on average between 1.75% and 2.25%. 

So, what is causing the US Dollar to decline over the past month? Well, we must remember the decline is not simply based on one factor, low treasury yields, risk appetite and a potential tax hike have also caused fluctuations in the price. However, one of the significant impacts is the Federal Reserve with their stance on future interest rates. As inflation starts to rise and employment starts to recover to more manageable levels, investors would have liked indications from the regulator that if the economic figures continue to improve, that interest rates may be on the raise towards the end of the year. However, the Chairman Mr. Powell, has stood firm that the improvement in the economy is not yet stable or significant enough for talks of interest rate hikes. In other words, investors will continue to receive a low return on their savings and investments.

The Regulator actually had spoken yesterday regarding the economy, as well as both the supply of the Dollar and interest rates. The Fed on Wednesday declined to let up on its easy money policy, despite an economy that it acknowledged is accelerating. As expected, the U.S. central Bank decided to keep short-term interest rates anchored near zero as it buys at least $120 billion of bonds each month (the regulators method of pumping more Dollars into the economy). The Chairman’s tone remained dovish and his tone had pushed the Dollar over the past few hours to a new two month low. Again, we can see here how the regulator has affected the world’s largest currency’s exchange rate.

It is important for traders to know why certain movements are happening and fundamental analysis is key as part of individuals overall analysis. However, technical and price analysis is also vital to traders in understanding the current price movements. Therefore, traders should keep in mind all three before determining how they may wish to position himself in the market.

This article was written and submitted by eXcentral

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing investing advice or a recommendation, or an offer of or solicitation for any transactions in financial instruments or a guarantee or a prediction of future performance. Past performance is not a guarantee of or prediction of future performance.
Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77,15% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

RELATED

IronFX: Leverage in Forex. Complete Guide

Leverage is simply borrowed funds that traders use to trade. In other words, it refers to the ability that traders have when opening an account with a forex broker...

How To Become A Successful Trader In 2023

In today's world, trading has become an attractive career choice for many individuals looking for financial independence and flexibility. However, becoming a successful trader requires more than just basic knowledge...

Common Trading Mistakes Every Trader Should Avoid

Trading in financial markets can be both exhilarating and profitable, but it's essential to navigate this world with caution and discipline. Many traders, especially beginners, often fall into common pitfalls...

What is a moving average and how do I use it?

Moving averages are one of the easiest types of technical indicator to understand and use. They provide a simplified view of the price action of an asset, with most...

What Are Commodities and How to Trade Them?

Since the beginning of human civilization, commodities have been a vital investment asset. In short, a commodity is a basic good or raw material that people buy and sell...

How To Set Financial Goals In A Crisis

Clearly setting goals is an important step on the road to financial success. They, unlike abstract desires, will definitely work. At all times, you need to be serious and conscious about this question...

Strongest and Most Valuable Currencies in the Global Landscape

In the realm of international economics and trade, the strength and value of a currency play a vital role. A strong currency reflects the health of its nation's economy and its global economic stature...

Dogecoin vs. Bitcoin: Which one is the Better Investment?

Dogecoin and Bitcoin are two well-known crypto assets. However, some traders may not know how to compare Dogecoin vs. Bitcoin, so knowing some of the significant similarities and differences...

Crypto rading for Beginners: Best Strategies and Patterns

Today, there are more than 19,000 cryptocurrencies in existence and counting. On the one hand, crypto trading opens up huge opportunities. On the other hand, such a wide variety can...

How to Use Orderblock in Forex Trading?

An order block represents the process of collecting orders from financial institutions and banks. The forex market relies on central banks and major financial institutions...

Which Is the Best Forex Trading Course?

The world of markets and online trading has a number of particularities. Learning is a blessing. Knowledge is your driving force. Your personal improvement on an ongoing basis is an objective that ultimately aims to succeed in critical situations...

Biggest Mistakes to Avoid as a Beginner Trader

One of the things learned on the trading floor is that the most crucial part of the success formula is to accept a loss. It’s how traders gain an additional profit and an edge against others...

What is risk management in Forex?

Risk management, also known as money management, refers to a number of trading techniques employed to lessen risk exposure. Being affected by various factors...

A Guide to Demo Trading Accounts

Embarking on your trading journey is akin to stepping into a vast, dynamic universe with its own set of rules. Whether you aim to explore the realms of forex, delve into precious metals...

Is MetaTrader 4 good for beginners?

MetaTrader 4 (MT4) is one of the world’s most popular trading platforms, suitable for all types of traders, regardless of expertise. MT4 has become wildly popular for many reasons...

Forex Trading Sessions: Types And Features

The schedule of forex trading sessions allows the trader to determine the best time to start working. During different sessions, the volatility of assets changes: increases or decreases...

How to Build and Diversify Your Ideal Crypto Portfolio

Crypto portfolio allocation is crucial to survival over the longer term. You are betting on the future when trading a cryptocurrency or investing in it. The future is uncertain...

LegacyFX: Commodity trading benefits

CFD Trading is a derivative financial instrument, and it is an abbreviation for "Contract for Difference". CFDs are of interest to traders who want to boost the amount and quality of their...

Q2 2022 Earnings Season Explained

Earnings season is a few weeks when most public companies share their quarterly performance in their earnings reports. It takes place every three months...

The Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) is a versatile and widely used technical indicator that offers insights into trends, momentum, and potential reversal points in the forex market...

FP Markets information and reviews
FP Markets
81%
RoboForex information and reviews
RoboForex
77%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.