The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its gains for the second successive session and trading around 98.60 during the Asian hours on Monday. Traders will likely watch ISM Manufacturing PMI data due later in the day.
The US Dollar strengthens on safe-haven demand, which could be attributed to the renewed geopolitical tensions following the United States’ (US) capture of Venezuelan President Nicolas Maduro.
CNN reported over the weekend that the US President Donald Trump administration launched a “large-scale strike against Venezuela” and detained President Maduro to face charges, without congressional approval. Trump said the US would administer Venezuela until a safe, orderly, and judicious transition is achieved.
The Guardian reported on Monday that President Trump warned Washington could launch a new military intervention if Venezuela’s interim president, Delcy Rodríguez, fails to meet US demands. He also made remarks about Colombia’s leadership, floated the idea of “Operation Colombia,” criticized Mexico for not getting its act together, and suggested Cuba appeared close to collapse.
Traders anticipate two additional Federal Reserve rate cuts in 2026. The Fed cut rates by 25 basis points (bps) in December 2025, lowering the target range to 3.50%–3.75%. It delivered a cumulative 75 bps of cuts in 2025 amid a cooling labor market and still-elevated inflation.
Federal Open Market Committee (FOMC) December Meeting Minutes suggested that most participants judged that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Markets are bracing for US President Donald Trump to nominate a new Fed chair to replace Jerome Powell when his term ends in May, a move that could tilt monetary policy toward lower interest rates.
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.
Source: https://www.fxstreet.com/news/us-dollar-index-rises-above-9850-on-us-venezuela-tensions-eyes-ism-pmi-data-202601050337
