Here is what you need to know on Tuesday, December 31:
The action in financial markets remain subdued as the year comes to an end. The economic calendar will not feature any data releases on Tuesday and trading conditions are likely to start normalizing when investors return from the New Year break on Thursday.
US Dollar PRICE This month
The table below shows the percentage change of US Dollar (USD) against listed major currencies this month. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.45% | 1.12% | 3.24% | 2.43% | 4.67% | 4.76% | 2.38% | |
| EUR | -1.45% | -0.33% | 1.72% | 0.96% | 3.17% | 3.26% | 0.91% | |
| GBP | -1.12% | 0.33% | 2.04% | 1.30% | 3.51% | 3.60% | 1.24% | |
| JPY | -3.24% | -1.72% | -2.04% | -0.79% | 1.39% | 1.46% | -0.85% | |
| CAD | -2.43% | -0.96% | -1.30% | 0.79% | 2.18% | 2.27% | -0.05% | |
| AUD | -4.67% | -3.17% | -3.51% | -1.39% | -2.18% | 0.08% | -2.20% | |
| NZD | -4.76% | -3.26% | -3.60% | -1.46% | -2.27% | -0.08% | -2.28% | |
| CHF | -2.38% | -0.91% | -1.24% | 0.85% | 0.05% | 2.20% | 2.28% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The data from the US showed on Monday that Pending Home Sales increased by 2.2% on a monthly basis in November. This reading followed the 1.8% increase recorded in October and came in better than the market expectation of 0.7%. During the Asian trading hours, NBS Manufacturing Purchasing Managers Index in China came in at 50.1 in December. In the same period, NBS Non-Manufacturing PMI improved to 52.2 from 50 in November.
The US Dollar (USD) Index continues to fluctuate near 108.00 after closing flat on Monday. The index, however, remains on track to end the third consecutive month in positive territory. Bond markets in the US will close early on New Year’s Eve. Meanwhile, US stock index futures trade marginally lower following the sharp decline seen in Wall Street’s main indexes on Monday.
After rising to its highest level in over 10 days above 1.0450, EUR/USD lost its traction and closed in the red on Monday. The pair holds steady at around 1.0400 in the European morning on Tuesday.
GBP/USD tested 1.2600 in the early American session on Monday but failed to gather bullish momentum. The pair stays in a consolidation phase near 1.2550 early Tuesday.
Gold declined below $2,600 and touched its lowest level since December 20 on Monday. XAU/USD holds its ground to begin the European session and trades near $2,610.
USD/JPY turned south and lost more than 0.5% on Monday, erasing a large portion of the previous week’s gains in the process. The pair continues to stretch lower and was last seen trading below 156.50.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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