Policies linked to the dollar are conducted by the Fed. It is independent of the U.S. government since the Board of Fed is in place for long terms that allow them to suffer under the pressures of successive governments. As we saw earlier, the main objective is to control inflation while promoting economic growth. To do this, the Fed uses two main tools:
Direct intervention in the market (Open Market Operations)
The Fed made outright purchases or sales of Treasury bills and bonds. In practice, massive purchases of such products promote lower interest rates while massive sales will tend to increase.
The target interest rate (Federal Funds Target Rate)
This is the loan interest rate that the Fed offers banks that are related. Each rate announcement is followed by the markets and the discourse that follows and gives directions for future policies to implement. In facts, the Fed increases interest rates to control inflation and declines to stimulate growth and consumption.
As for fiscal policy, regarding government expenses and fixing taxes, it is led by the U.S. Treasury. Its role is more important as it sounds because it has the authority to instruct the Federal Reserve to the Bank of New York to intervene directly in the foreign exchange market by selling or buying the dollar if it considers that the exchange rate is over (or under) estimated.
The dollar is the most watched and most traded on the Forex market currency. In fact, the dollar is present in over 90% of all Forex transactions. Its weight is considerable, which explains at the same time the importance of the figures of the U.S. economy and various reports on price movements. But this weight tends to decline over the years with, as we said, the growing strength of the euro as a reserve currency in central banks. This trend should continue in the coming years, especially with the gradual increase in interest rates in Europe, investments in dollars become less lucrative.
Originally posted 2013-08-24 06:31:08. Republished by Blog Post Promoter