In March, retail sales across the United States rose 1.4%. This increase was well over the forecast of 1.3% and puts total sales at a staggering $734.9 billion. This increase is a year-over-year increase of 4.6%, a testament to solid consumer spending amidst continued economic uncertainty.
The USD is the legal tender of the United States. Yet, it has become the most dominant and widely understood globally, clearly king money, and most recognized as the ‘de facto’ currency. It accounts for more than 88% of all global foreign exchange turnover. On a daily basis, that amounts to an average of $6.6 trillion in transactions. Since the USD supplanted the British Pound as the world’s reserve currency after WW II, the USD has been the star player in international trade. It is an important part of international finance, too.
The Role of the Federal Reserve
The Federal Reserve (or shorten to Fed) helps determine the value of the US Dollar. It does this primarily by setting and implementing its monetary policy. The Fed has two primary mandates: to achieve price stability and to foster full employment. These three goals are fundamental to maintaining a robust economy. What’s more, they directly affect the USD’s strength in global markets.
To achieve these often conflicting goals, the Fed largely uses interest rate manipulation. When inflation falls below 2% or unemployment increases dramatically, the Fed will feel the need to cut interest rates. This increased action tends towards the weakening of the US Dollar. When inflation exceeds the 2% target, the Fed raises rates to restore balance, giving a boost to the value of the USD.
Quantitative Easing (QE) and Quantitative Tightening (QT) are important factors in this equation as well. Quantitative easing (QE) increases the flow of credit in a malfunctioning financial system. With this much new money in the economy, the dollar usually weakens significantly. In the opposite case, QT occurs when the Fed stops purchasing bonds. They refrain from reinvesting in new securities as old ones mature, a step that typically bolsters the USD.
“Total sales for the January 2025 through March 2025 period were up 4.1% from the same period,” – the US Census Bureau
Retail Sales Trends
The latest jump in retail sales is further proof of a strong consumer in an otherwise wobbly economy. In March, consumer confidence was much higher with an increase of 1.4% reported. This increase is illustrative of a recovery in consumer spending patterns as restrictions associated with the pandemic further lift.
This growth is particularly notable for several reasons. That’s a small consolation, it seems, for reflecting a deepening trend at the retail sales figure we’ve seen these past few months. Just consumer spending increasing at a remarkable rate! This trend is consistent with other economic indicators reflecting recovery and expansion as firms adjust to new post-pandemic circumstances.
The retail sector’s performance serves as a barometer for overall economic health, influencing factors such as employment rates and GDP growth. Analysts are watching these trends very closely, since retail sales often weigh heavily on retail sales-driven monetary policy decisions by the Fed.
Global Impact of the US Dollar
The US Dollar’s status as the most widely traded currency in the world further expands its influence beyond US borders. For this reason, nations across the world increasingly use the USD for both international trade and reserves. Since dependency, this is, of course, a dependence that the value can have major impact.
Many nations use the USD for international transactions due to its stability and liquidity, which further cements its position in global finance. This reliance on the USD means that changes in US monetary policy can ripple through economies worldwide, affecting everything from inflation rates to trade balances.
In recent years, discussions around the potential for alternative / digital currencies have taken off. Yet none have even come close to challenging the USD’s dominance. Now, as central banks are pushed to explore new monetary technologies, the USD continues to play an indispensable role in the global arena.