US dollar is crashing: here's why
Recent data has driven US dollar pairs lower, leaving traders to speculate on the Fed's next move. Find out what's behind this recent decline and where the dollar could go next.
USD/CHF, EUR/USD and GBP/USD have all recently experienced historic price extremes, and there has been continued weakness in the dollar across the board. UUP, an ETF tracking USD against other major currencies, is down 9.5% from its 2022 highs last fall; the index fell 2.6% in the last week alone.*
Inflation data and interest rates
A key factor in the recent decline of USD was the lower-than-expected inflation data released last week. Core inflation printed at 4.8% - the first time below 5% in over a year. Markets reacted strongly since the reading came 0.2% lower than the forcasted 5.0%.
Traders respond quickly to inflation data because interest rates directly follow inflation. With inflation possibly more under control, the central bank will have less reason to continue hiking interest rates going forward.
Demand for US dollar
Analyzing a step further, the possibility of flattening US interest rates could lead to decreased demand for USD over other currencies. Since inflation continues to rise in European countries like the UK, there will be less inscentive to hold US dollars as US interest rates may soon be eclipsed by other major economies.
Learn more about interest rate differentials in carry trades
While the most recent data could lead to an ease in restrictive monetary policy, USD can still go either way. Still far from the Fed's 2% inflation goal, the central bank could continue rate hikes until readings reflect that goal. Conversely, this sub-five percent reading after months of lowering inflation could be enough to slow or reverse the interest rate decision.
How to trade USD
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like IG. USD pairs can be found in IG's platform under the 'USD Pairs' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
*Source: dxfeed.com - data as of 12:00 ET 7/12/23
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
Live prices on the most popular forex markets
See more forex live prices
Prices above are subject to our website terms and agreements. Prices are indicative only
