US dollar exchange rate MT5

US dollar exchange rate

Nowadays, more than 85% of transactions on the financial market are connected with the US dollar, which is also used as a basis for the cross rates calculations. Thus, the US dollar dynamic affects most currency rates on Forex. That is why the US dollar is one of the most popular financial instruments among the market’s participants.

The Federal Reserve Bank has the greates influence on the US dollar’s rate. The Fed serves as the central bank of the United States. The future economic situation in the country depends on the Fed. The main tools of the Fed’s monetary policy are reserve requirements, open market operations, and discount rate. Using these tools, the Fed impacts on the money supply. It manipulates the national currency rate by trading the securities on the open market of the Federal Reserve Bank of New York and changing the discount rate and affecting the funds of the US reserve system.

The use of open-market operations are considered to be the most important tool to the monetary policy implementation. The Federal Open Market Committee, which takes all decisions concerning the US monetary policy, has the most significant influence on the national currency. The FOMC is responsible for decisions on the monetary policy including the announcement of the interest rate changes that occurs 7 times a year.

Interest rate is another tool of influence on the US dollar. The Federal Funds Rate is one of the most important US rates at which banks borrow reserves from each other. As soon as the FOMC announces the decision to change the interest rates, the market starts to react by altering prices. Discount Rate is the second very important rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank’s discount window. In most cases, the indicator is hardly higher than the Federal Funds Rate.

The 30-year US Treasury bond is the major indicator of the market’s expectation of inflation and another fact that impacts the US dollar. The 30-year bond is also called the long bond or bellwether treasury. Its effect on the US dollar can be different depending on the economic cycle. If the inflation does not throttle the economy, the national currency will gain in value. However, if there is a threat to the economy, the bonds will be actively sold off and the US dollar may significantly fall. Recently, the amount of bonds has been reducing because the US Treasury department is buying its debt back. That is why the 10-year Treasury bonds replace the long bonds.

The interest rate on 3-month dollar-denominated deposits held in banks outside the US also has an important impact on the national currency. It serves as a valuable benchmark for determining interest rate differentials to help estimate exchange rates.

The US Treasury is responsible for the release of the information on the national debt and for decisions on the fiscal budget. It does not determine the monetary policy, however, its announcements concerning the US dollar have a large impact on the national currency exchange rate. The organization services the government debt. Also it takes decisions on the financing of the US budget.

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