The US Dollar (USD), the official currency of the United States, continues to demonstrate its dominance on the global stage. As the most heavily traded currency worldwide, it accounts for over 88% of all global foreign exchange turnover. With an average of $6.6 trillion in daily transactions as of 2022, the USD remains indispensable in international finance. Following the Second World War, it supplanted the British Pound to become the world’s reserve currency—a status it maintains to this day.
The USD's influence extends beyond its borders, serving as a 'de facto' currency in numerous countries where it circulates alongside local currencies. This widespread adoption underscores its critical role in global trade and finance. The US Dollar's journey from being backed by gold to its current state began with the Bretton Woods Agreement in 1971, which marked the end of the Gold Standard.
At the heart of the USD's valuation is monetary policy, primarily shaped by the Federal Reserve (Fed). The Fed's dual mandate aims to achieve price stability by controlling inflation and fostering full employment. These goals are pursued through adjustments in interest rates, a key tool in influencing the USD's value. When inflation exceeds the Fed's 2% target, interest rates are typically raised to strengthen the Dollar. Conversely, lower rates are employed when inflation falls below target or when unemployment rates are high, which can weigh down the Greenback.
The Federal Reserve holds additional tools in its monetary arsenal, such as printing more Dollars and enacting quantitative easing (QE) during extreme situations. While QE can inject liquidity into the economy, it often leads to a weaker US Dollar. This strategic maneuvering by the Fed is crucial in maintaining economic stability and ensuring that inflationary pressures do not spiral out of control.
As of recent data, the USD/CHF currency pair trades near a 15-month high around 0.9200, reflecting strong market confidence in the US Dollar against the Swiss Franc. The 14-week Relative Strength Index (RSI) oscillates in a bullish range of 60.00-80.00, suggesting robust upside momentum for the USD. This technical indicator points to sustained strength for the Dollar, supported by favorable economic conditions and strategic monetary policy decisions.
In recent years, global economic dynamics have further underscored the importance of the US Dollar's stability. As emerging markets and developing economies navigate challenges such as inflation and geopolitical uncertainties, the USD remains a preferred safe haven asset. Its resilience amidst these challenges highlights its enduring appeal as a reliable store of value.
The Federal Reserve's ongoing assessment of economic indicators remains pivotal in shaping expectations for the USD's future trajectory. As inflationary pressures persist and labor markets evolve, the Fed's decisions regarding interest rates and monetary policy will continue to influence global perceptions of the Dollar's strength. Moreover, shifting geopolitical landscapes and international trade dynamics add layers of complexity to these considerations.