Influencing Factors of dollar index

US federal fund interest rate

Under normal circumstances, the U.S. interest rate is falling, and the dollar trend is weak. The U.S. interest rate is rising, and the dollar trend is preferred. In the first half of 1980s, the US dollar remained strong with a large trade deficit and a huge fiscal deficit, that is, the United States implemented a high-interest rate policy, the result of a massive inflow of capital from Japan and Western Europe to the United States. The dollar trend is greatly affected by interest rates. If the interest rate of a country is higher than that of other countries, a large amount of capital inflows will be attracted, and the outflow of funds in the country will decrease, leading to the flash sales of this currency in the international market. Meanwhile, the income and expenditure of the capital account will be improved, the exchange rate of domestic currency has been increased. On the contrary, if the interest rate of a country's loose credit goes down, if the interest rate level is lower than that of other countries, a large amount of capital outflow will occur, foreign capital inflows will decrease, and the income and expenditure of the capital account will deteriorate, at the same time, the foreign exchange market will sell this currency, causing the exchange rate to fall.

Discount Rate

The discount rate is the interest rate charged by the Fed when commercial banks apply for loans from the Fed due to emergency situations such as reserves. Although this is a symbolic interest rate indicator, its changes will also express a strong policy signal. The discount rate is generally less than the federal capital interest rate.

30-year Treasury bond

30-year treasury bonds, also known as long-term bonds, are the most important indicator for the market to measure inflation. In the market, the bond level is measured by the bond yield instead of the price. Same as all claims, the 30-year Treasury bill and price are negatively correlated. There is no clear link between long-term bonds and the U.S. dollar exchange rate. However, there is usually one of the following links: the decline in bond prices due to inflation, that is, the rise in yields, may put us dollar under pressure. These considerations may be caused by some economic data.

Economic data

Economic data. Among the economic data released by the United States, the most important include: Labor Report (salary level, unemployment rate and average hourly income), CPI (Consumer Price Index consumer price index), PPI, GDP (gross domestic product, GDP), international trade level, industrial production, housing construction, housing permit and consumption confidence.

Stock Market

Stock market. The three main stock indexes are: Dow Jones Industrial Index (Dow, Dow Jones Industrial Index), S & P 500 (S & P 500), and Nasdaq (NASDAQ index ). Among them, the Dow Jones Industrial Index has the largest impact on the US dollar exchange rate. Since mid 1990s, the Dow Jones Industrial Index and the US dollar exchange rate have been significantly positively correlated (because foreign investors have bought U.S. assets ). Three main factors affecting the Dow Jones Industrial index are: 1) company revenue, including expectations and actual income; 2) interest rate level expectations; 3) global political and economic conditions.

Product Price

Most commodities in the international commodity market are priced in US dollars, so the prices of commodities are significantly negatively correlated with the US dollar index.

Euro exchange rate

The dollar index is basically a weighted index of a series of exchange rates, so it eventually reflects the strength of the free exchange currency between the United States and its major trading currencies. In terms of the dollar index, the euro is the most weighted currency, and the trend of the euro naturally becomes an important factor affecting the dollar index.

The above is the knowledge about the influencing factors of the dollar index. For more information about the dollar index, please pay attention to the dollar index column in the foreign currency Valley portal.