The US dollar (USD), recognized as the most heavily traded currency in the world, continues to show its strength in the global financial markets. The USD rules international trade and finance, comprising more than 88% of all foreign exchange turnover. Its comprehensive and universal role uniquely impacts global economic transactions on a daily basis. Recent numbers estimate that the USD’s average daily transaction volume is a staggering $6.6 trillion. This extraordinary number is a testament to the currency’s supremacy in the international marketplace.
The USD replaced the British Pound as the world’s dominant reserve currency after World War II. This transformation entrenched its power in international markets, becoming a linchpin of economic security and prosperity. The US Dollar Index (DXY), as it is now calculated, measures the dollar’s value against a basket of six major currencies. As of today, it’s about 98.40.
Market analysts are counting down the days until we receive the next inflation data release, especially the November Consumer Price Index (CPI) report. Headline inflation is predicted to rise to 3.1% YoY from 3% in October. At the same time, core CPI is expected to have increased on a cumulative basis by 3%. This information is imperative. Surprise upside in CPI prints may put some stress on the dovish Fed for now priced into markets, with downside data printing reinforcing those dovish expectations.
The Fed’s ability to raise and lower interest rates is key to their plan to fight current inflation-related fears. Their most important tool for achieving these goals at a macroeconomic level lies in the interest rates they control. Analysts are already cautioning that inflation might fall below 2% in the near future. For example, if unemployment rates suddenly spike, the Fed can cut interest rates to stimulate economic activity.
In terms of the USD/CAD currency pair, recent markets have pushed it slightly lower, now trading at about 1.3770. The 20-day Exponential Moving Average (EMA) for this currency pair is a high 1.3872. In order to signify a more sustainable recovery, the price needs to end above this mark on a daily level. Market participants remain vigilant as they await the release of the CPI data, which could significantly impact trading strategies and expectations for future monetary policy.