US Dollar Index posts modest gains above 98.00 on hawkish Fed pause despite weaker US GDP
- US Dollar Index trades with mild gains around 98.15 in Friday’s Asian session.
- Fed held its key policy rate steady at its April meeting, as widely expected.
- US GDP grew at an annualized rate of 2.0% in Q1 2026, weaker than expected.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 98.15 during the Asian trading hours on Friday. The DXY posts modest gains on a hawkish hold from the US Federal Reserve (Fed). Traders brace for the US ISM Manufacturing Purchasing Managers Index (PMI) for April, which is due later on Friday.
As widely expected, the US central bank held the federal funds rate steady at 3.5% to 3.75% at its April meeting on Wednesday, marking a third straight pause. Fed Chair Jerome Powell said during the press conference that the economic outlook remained highly uncertain and that the Middle East conflict had contributed to that uncertainty.
Powell further stated that the committee felt like it was in a "good place" to either move towards rate cuts or rate hikes, depending upon how the impact from surging oil prices plays out. Hawkish remarks from Fed officials could lift the US Dollar against its rivals in the near term.
Furthermore, ongoing tensions in the Middle East and the closure of the Strait of Hormuz could boost a safe-haven asset such as the US Dollar. Earlier on Thursday, US President Donald Trump said he was sticking with a naval blockade of Iranian ports amid concerns the vital Strait of Hormuz would not reopen anytime soon.
Meanwhile, Iranian President Masoud Pezeshkian stated that he considered the US naval blockade an “extension of military operations" and that it was “intolerable.”
Nonetheless, the downbeat US economic data might cap the upside for the DXY. Data released by the Bureau of Economic Analysis (BEA) on Thursday showed that the US economy expanded at an annualised rate of 2.0% in the first quarter of 2026 (Q1). This figure followed a 0.5% expansion in the previous reading but came in weaker than the expectation of 2.3% growth.
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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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