US Dollar Index Dips Below 98.30 in Calm Holiday Trading
The US Dollar Index (DXY) remains marginally higher in a quiet year-end session on Wednesday, but has given away most of its daily gains after peaking at 98.44, and trades near 98.25 heading into the US session opening. The DXY, which measures the value of the greenback against a basket of six currencies, is trading about 2% below November’s peak, at 100.40, and on track to a nearly 10% yearly depreciation, its weakest performance in the last eight years.
Investors’ concerns about the impact of US President Donald Trump’s erratic trade policies and growing signs of economic slowdown have boosted US Dollar short positions throughout the year. Beyond that, the unprecedented political pressures on the Federal Reserve to cut borrowing costs have eroded the market’s confidence in the bank’s independence, calling into question the US Dollar’s status as the world’s reserve currency. The Federal Reserve remains halfway through its monetary easing cycle, at a moment when most of the world’s central banks have reached their terminal rate, which has been a strong headwind for any significant Greenback recovery.
US Dollar Performance in 2025
The US Dollar has been one of the weakest G8 performers in 2025, with its value declining due to various economic and political factors. The Federal Reserve’s monetary easing cycle and the impact of US President Donald Trump’s trade policies have contributed to the decline. With the US weekly Jobless Claims report expected to provide a last impulse to the FX market, applications for unemployment benefits are expected to have grown to 220K in the week of December 16, from 214K in the previous week, posing a risk for the USD.
Understanding the US Dollar
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. The value of the US Dollar is impacted by monetary policy, which is shaped by the Federal Reserve (Fed), with its primary tool being the adjustment of interest rates to achieve price stability and foster full employment.
Monetary Policy and the US Dollar
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE), which involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE is usually used when credit has dried up because banks will not lend to each other, and it typically leads to a weaker US Dollar. On the other hand, 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, which is usually positive for the US Dollar.
Smart Tip for Readers
When monitoring the US Dollar’s performance, it’s essential to keep an eye on the Federal Reserve’s monetary policy decisions and their impact on interest rates, as these can significantly influence the currency’s value. For more information on the current US Dollar Index and its trends, visit Here
