USD – U.S. Dollar

1. Currency Identity

The U.S. dollar is not a currency like the others. It is, at the same time, the national currency of the United States, the global reserve currency, the unit of account for commodities, the collateral of the international financial system, a funding currency, and a safe-haven asset in periods of stress.

This dual nature lies at the heart of the dollar: it can strengthen both when the U.S. economy is performing well, because U.S. yields become more attractive, and when the global environment deteriorates, because investors seek liquidity, Treasuries, and protection. It is a currency that often appreciates during phases of “strong America”, but also during phases of a “fragile world.”

The dollar remains the center of the global foreign exchange market. According to the BIS, in the 2025 Triennial Survey, the dollar was on one side of 89.2% of all global FX transactions, confirming its status as the market’s dominant currency. Global OTC FX turnover reached approximately $9.6 trillion per day in April 2025.

Its centrality does not depend solely on American economic strength. It depends on a broader network: the Treasury market, the international banking system, global trade, dollar-denominated corporate debt, central bank reserves, international payments, and the role of the Federal Reserve as the most closely watched central bank in the world.

Its identity can be summarized as follows:

The dollar is the currency of the system. It does not merely measure the United States; it measures the global need for liquidity, yield, and safety.

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2. Operational CV

Item	USD
Name	U.S. Dollar
Ticker	USD
Nickname	Greenback or Buck
Central Bank	Federal Reserve
Decision-Making Committee	FOMC
Fed Mandate	Maximum employment, price stability, and moderate long-term interest rates
Inflation Target	2% over the long run, mainly measured through PCE
Exchange Rate Regime	Floating
Currency Profile	Reserve currency, safe haven, funding currency, systemic currency
Main Pairs	EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD
Reference Index	DXY, U.S. Dollar Index
Main Drivers	Fed, Treasury yields, U.S. inflation, labor market, growth, risk sentiment, global liquidity
Assets to Monitor	U.S. 2Y, U.S. 10Y, real yields, DXY, S&P 500, Nasdaq, gold, oil, VIX, MOVE, USD/CNH
Most Relevant Session	New York, although the dollar influences all sessions
Dominant Nature	Currency of global liquidity

The USD has multiple operational identities. It is not enough to define it as a “safe haven,” because in many phases it is also a yield currency. It is not enough to define it as an “American currency,” because its use outside the United States is enormous. It is not even enough to define it as a “strong currency,” because its strength depends on the market regime.

The dollar should be read as a currency with three layers:

1. U.S. macro currency
   It reacts to the Fed, inflation, labor, growth, and yields.
2. Global financial currency
   It reacts to funding, dollar-denominated debt, Treasuries, liquidity, and system stress.
3. Psychological risk currency
   It reacts to fear, demand for protection, and the need to reduce exposure.

These three layers can work together or conflict with each other. When they work together, the dollar’s movement is powerful. When they contradict each other, the signal becomes harder to interpret.

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3. Drivers and Catalysts

Fed: The Price of Global Money

The Federal Reserve is the first driver of the dollar because it influences the cost of money in the most important currency in the world.

When the Fed raises rates or is perceived as more restrictive, the dollar tends to receive support. The reason is simple: if dollar assets yield more, they become more attractive to global capital. In addition, if borrowing dollars becomes more expensive, those with debts or positions funded in USD may be forced to buy dollars to hedge or reduce risk.

When, instead, the market prices in a more accommodative Fed, the dollar may weaken. If U.S. yields fall and other areas of the world offer more attractive yields or better prospects, capital may leave the dollar and move elsewhere.

But the Fed should not be read only through the level of interest rates. The market mainly watches the expected path.

A high rate that is already priced in may no longer support the dollar. A lower rate, if still less low than the market had feared, can support it. The dollar moves when perception changes about the future direction of the Fed, not simply when a decision is announced.

The operational question is:

Is the Fed becoming more restrictive or more accommodative compared to what the market had already priced in?

Treasury Yields: The Bridge Between the Fed, Capital, and USD

Treasury yields are one of the main channels through which the dollar moves.

The U.S. 2-year yield is highly sensitive to expectations about Fed rates. If it rises, it often indicates that the market is pricing in higher rates or fewer rate cuts. This can support the dollar, especially against currencies where the central bank appears softer.

The U.S. 10-year yield has a more complex interpretation. It does not only reflect the Fed, but also growth, inflation, term premium, public debt, demand for duration, and the perception of fiscal risk.

Here, caution is needed: not all increases in yields are the same.

If yields rise because U.S. growth is strong and the market trusts the Fed, the dollar may strengthen in a “clean” way. This is yield-driven strength.

If, instead, yields rise because the market demands a higher premium to buy U.S. debt, the reading becomes more ambiguous. The dollar may rise in the short term due to rate differentials, but it may lose quality if the market starts perceiving fiscal risk or instability in the Treasury market.

So it is not enough to say:

“U.S. yields up, dollar up.”

The better question is:

“Why are U.S. yields rising?”

U.S. Inflation: The Data That Changes the Fed

Inflation matters for the dollar because it changes expectations about the Fed.

More persistent-than-expected inflation can support USD because it reduces the probability of rate cuts or increases the probability of a more restrictive monetary policy. Slowing inflation can weaken USD because it opens room for a softer Fed.

But here too, the reading should not be mechanical.

Not every high inflation print strengthens the dollar. If the market believes high inflation will damage growth or increase the risk of stagflation, the reaction can become more complex. In the same way, lower inflation can weaken USD if it fuels expectations of rate cuts, but it can also support risk-on sentiment and push the market out of the dollar.

The right question is not:

“Is the data high or low?”

The right question is:

“Does this data change the Fed’s reaction function?”

If the answer is yes, the dollar reacts. If the answer is no, even apparently important data can be absorbed quickly.

Labor Market: Growth, Wages, and Cycle Resilience

The U.S. labor market is the other major pillar in reading the dollar.

Payrolls, unemployment, wages, participation, and job openings are important because they indicate whether the U.S. economy remains solid or is slowing. A strong labor market can support the dollar because it makes the Fed less inclined to cut rates. A weak labor market can weigh on the dollar because it increases the probability of a more accommodative Fed.

The most delicate part is wages. If wages grow too quickly, the market may read inflationary pressure. If they slow too much, it may read a weakening cycle. If, instead, employment remains solid while wages moderate, the market may interpret it as a favorable risk scenario: growth still alive, inflation less threatening, and a less aggressive Fed.

In that case, the dollar may even weaken, not because the data is “negative,” but because the market does not need to hide in USD.

Once again, the dollar must be read by regime.

U.S. Growth: When the Dollar Buys “America”

The dollar tends to strengthen when the United States grows better than other developed economies, especially if this strength comes together with high yields.

This dynamic is often called “American exceptionalism”: the idea that the U.S. economy is more resilient, productive, dynamic, or attractive than other regions. In this scenario, global capital buys American assets: stocks, bonds, credit, private markets, and dollars.

When the dollar rises because of U.S. growth, the move tends to be different from one caused by panic. It is more orderly strength, often accompanied by solid equities, sustained yields, and confidence in the U.S. cycle.

But caution is needed: if U.S. growth becomes too strong and reignites inflation, the market may fear a tougher Fed. In that case, the dollar can rise, but equities may suffer. If growth slows too much, the dollar may weaken due to expectations of cuts, unless the slowdown generates global panic. In that case, it may rise again as a safe haven.

This is one of the main traps of USD: the same data can have different effects in different regimes.

Risk-Off: The Dollar as a Liquid Safe Haven

The dollar is the main liquidity safe haven during moments of stress. Not because it is always “safe” in an absolute sense, but because it is the most accepted, most liquid, and most necessary currency for settling global positions.

When risk rises, many investors need to reduce leverage, close carry trades, cover margin calls, liquidate risky assets, or buy Treasuries. All these operations can create demand for dollars.

This explains why the USD can rise even when the shock starts in the United States. In a financial crisis, the market can sell risky American assets and buy dollars at the same time. It looks contradictory, but it is not: it is selling risk and buying liquidity.

In risk-off, the dollar tends to be stronger against:

• AUD;
• NZD;
• CAD;
• emerging market currencies;
• high-beta currencies;
• currencies linked to commodities and global growth.

Against JPY and CHF, however, the reading is more subtle, because the yen and Swiss franc are also defensive currencies. In those cases, the key is to understand which safe haven the market prefers.

Dollar Funding: The Hidden Side of USD

One of the most important dollar dynamics is its role as a funding currency.

Many companies, banks, governments, and investors outside the United States borrow in dollars or hold obligations denominated in USD. This creates structural demand for dollars, especially when financial conditions tighten.

When the dollar strengthens, those with USD debt but revenues in another currency come under pressure. They need more local currency to buy the same dollars required to service the debt. This can create a vicious circle:

USD rises → dollar debt becomes heavier → hedging demand increases → USD rises further.

This dynamic is especially important in emerging markets. When the dollar is strong and U.S. yields rise, many emerging countries can face outflows, currency weakness, and higher capital costs.

This is why USD is not only a currency: it is also a global financial condition.

Debt, Deficits, and Trust

Over the long term, the dollar exists inside a structural tension: the United States issues the global reserve currency, but at the same time accumulates deficits, debt, and financing needs.

As long as the world wants dollars and Treasuries, this structure holds. In fact, the U.S. external deficit can be read as part of the mechanism: the United States absorbs goods and capital, while the rest of the world accumulates dollar-denominated assets.

The problem arises when the market begins to question whether U.S. debt is growing too quickly or whether demand for Treasuries is strong enough to absorb future issuance.

This is not a dynamic that moves the dollar every day, but it is an underlying force. It can emerge during phases in which yields rise without macro improvement, or when the market perceives that the premium required to hold U.S. debt is increasing.

Here the reading becomes delicate: in the short term, higher yields can support USD. Over the long term, if those yields reflect deteriorating trust, they can weaken the perceived quality of the dollar.

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4. Decision Compass

When the Dollar Tends to Strengthen

The dollar tends to be supported when the market sees:

• Fed more restrictive than other central banks;
• U.S. yields rising;
• positive or rising real yields;
• persistent inflation;
• U.S. data better than expected;
• American growth outperforming the rest of the world;
• global demand for liquidity;
• rising volatility;
• stress in equities, credit, or emerging markets;
• demand for Treasuries;
• weakness in the euro, yen, yuan, or cyclical currencies.

The dollar is particularly strong when two forces work together:

yield + protection.

If the United States offers attractive yields and the world is nervous, USD becomes difficult to fight. In that environment, the market is not only buying the dollar because it “yields more,” but also because it sees it as the most liquid currency in which to seek shelter.

When the Dollar Tends to Weaken

The dollar tends to lose strength when the market sees:

• a more accommodative Fed;
• slowing inflation;
• U.S. yields falling;
• real yields declining;
• less exceptional U.S. growth;
• improving growth outside the United States;
• global risk-on sentiment;
• rising demand for commodities;
• strengthening cyclical currencies;
• reduced demand for safe havens;
• greater confidence in emerging markets.

The most negative scenario for USD is one in which U.S. inflation slows, the Fed can cut rates, the global economy improves, and investors do not need protection.

In that case, the dollar loses two advantages at the same time: the yield advantage and the safe-haven advantage.

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How to Distinguish Dollar Regimes

To interpret USD properly, it is necessary to understand which regime is dominant.

Regime 1: Yield-Driven Dollar

The dollar rises because U.S. yields rise and the Fed appears more restrictive.

Typical signals:

• U.S. 2Y rising;
• real yields rising;
• strong U.S. data;
• reduced Fed cut expectations;
• USD strong especially against low-yielding currencies.

This is the “macro dollar.”

Regime 2: Fear-Driven Dollar

The dollar rises because the market sells risk and seeks liquidity.

Typical signals:

• equities falling;
• VIX rising;
• credit under pressure;
• cyclical currencies weak;
• emerging markets fragile;
• demand for Treasuries or USD cash.

This is the “safe-haven dollar.”

Regime 3: Dollar Driven by Liquidity Scarcity

The dollar rises because the system needs dollars to fund itself, hedge, or reduce leverage.

Typical signals:

• funding stress;
• pressure on cross-currency basis;
• stress in emerging markets;
• USD strong against almost everything;
• violent and disorderly moves.

This is the “systemic dollar.”

Regime 4: Weak Dollar from Risk-On

The dollar falls because investors move out of liquidity and seek returns elsewhere.

Typical signals:

• equities rising;
• commodities strong;
• AUD, NZD, CAD, and EM FX recovering;
• low volatility;
• U.S. yields stable or falling in an orderly way.

This is the dollar “sold because of confidence.”

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5. Practical Reading of the Main Pairs

EUR/USD

EUR/USD is the main pair in the FX market. It is not just a comparison between the euro and the dollar, but also a comparison between two monetary areas, two economic cycles, and two central banks.

When EUR/USD falls, it can mean three different things:

1. dollar strength;
2. euro weakness;
3. both at the same time.

To understand this, one must also look at EUR/GBP, EUR/JPY, USD/JPY, GBP/USD, and DXY. If EUR/USD falls but the dollar does not strengthen against all other currencies, the problem may be specific to the euro. If, instead, USD rises against almost everything, the move is more systemic.

USD/JPY

USD/JPY is one of the pairs most sensitive to yield differentials. When U.S. yields rise and Japanese yields remain compressed, USD/JPY tends to rise.

But the yen is also a safe-haven currency. During phases of extreme risk-off, it can strengthen even if rate differentials do not support it. For this reason, USD/JPY must always be read on two levels:

• U.S.-Japan rate differential;
• demand for yen as a safe haven.

If USD/JPY rises with Treasury yields rising, it is a yield-driven move. If it falls while markets are collapsing, it may be a risk-off move favoring the yen.

GBP/USD

GBP/USD, or Cable, is a pair with high macro and sentiment sensitivity. The dollar dominates many phases, but sterling has its own volatility linked to the BoE, British inflation, UK growth, and confidence in economic policy.

When GBP/USD falls, one must ask whether the move comes from:

• broad dollar strength;
• sterling-specific weakness;
• a combination of the two.

EUR/GBP helps separate the signal. If GBP/USD falls and EUR/GBP rises, sterling is weak. If GBP/USD falls while EUR/GBP remains stable, the move may be mainly dollar-driven.

USD/CHF

USD/CHF is interesting because it compares two defensive currencies: the dollar and the Swiss franc.

If USD/CHF rises, the market is preferring USD over CHF. This can happen when U.S. yields, the Fed, or global liquidity dominate.

If USD/CHF falls during stress, the market may be seeking specific protection in the Swiss franc, possibly because the perceived risk concerns the dollar, the United States, or the global financial system.

This pair helps assess the quality of safe-haven demand.

USD/CAD

USD/CAD should be read through three filters:

1. Fed versus Bank of Canada;
2. oil;
3. U.S.-Canada economic cycle.

The CAD can be supported by oil, but if the dollar is strong and U.S. yields rise, USD/CAD can still rise. Conversely, if oil rises and the dollar loses strength, the CAD can strengthen more clearly.

This pair is not simply “dollar versus oil.” It is a comparison between energy, rates, and the North American cycle.

AUD/USD and NZD/USD

AUD/USD and NZD/USD are among the most useful pairs for understanding whether the market is buying or selling risk.

If AUD/USD and NZD/USD rise, the market is often in risk-on mode, especially if they rise together with equities and commodities. If they fall violently, there may be demand for USD, fear around China, commodity weakness, or carry reduction.

AUD/USD is more linked to China, minerals, and the industrial cycle. NZD/USD is more sensitive to the RBNZ, agriculture, Asian demand, and global financial conditions.

USD/CNH

USD/CNH is a key pair for interpreting the dollar in relation to China.

When USD/CNH rises, it may signal dollar strength, yuan pressure, Chinese stress, or global tension. When it falls, it may indicate improved sentiment toward China, USD weakness, or a more favorable management/intervention stance toward the yuan.

To read AUD, NZD, commodities, and EM FX, USD/CNH is often a decisive variable.

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6. Operating Hours and Trading Windows — UTC 0

The dollar is active in all sessions, but some windows are more important.

Asian Session

In Asia, the dollar mainly moves through:

• USD/JPY;
• USD/CNH;
• AUD/USD;
• NZD/USD;
• Treasury futures;
• Chinese data;
• sentiment in Asian equities.

This session is useful for understanding whether the USD move comes from Asia, China, the yen, or continuation of the previous U.S. flow.

If the dollar strengthens in Asia together with USD/CNH and USD/JPY, the signal may have an important Asian component. If, instead, the move is not confirmed by London, it may only be a temporary adjustment.

European Session

London is a crucial window for the dollar because it concentrates major FX liquidity.

Here, the key instruments become:

• EUR/USD;
• GBP/USD;
• USD/CHF;
• European crosses;
• DXY.

London often decides whether to confirm or reject the move that started in Asia. If the dollar strengthens in Asia and London keeps buying it, the move becomes more credible. If London immediately sells it, the initial signal loses strength.

U.S. Session

New York is the dominant window for the dollar.

Here, the key forces are:

• U.S. macro data;
• Treasury cash market;
• Wall Street;
• Fed speakers;
• options;
• institutional flows;
• European close;
• credit market reaction.

Many U.S. data releases come out at 08:30 Eastern Time, which corresponds approximately to:

• 13:30 UTC when the United States is on standard time;
• 12:30 UTC when the United States is on daylight saving time.

Other important data often come out at 10:00 Eastern Time, therefore:

• 15:00 UTC during U.S. standard time;
• 14:00 UTC during U.S. daylight saving time.

FOMC decisions are normally released at 14:00 Eastern Time, followed by the press conference.

For those observing the dollar, the window between U.S. macro data, Wall Street open, and Treasury market movement is often the most important part of the day.

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7. Dashboard of Connected Assets

U.S. 2Y Yield

The 2-year yield is one of the best indicators of expectations about the Fed.

If the 2Y rises, the market is often pricing in a more restrictive Fed. This tends to support USD. If the 2Y falls, the market may be pricing in cuts, slowdown, or easier financial conditions.

It is especially useful for reading EUR/USD, USD/JPY, and GBP/USD.

U.S. 10Y Yield

The 10-year yield is broader and more complex. It does not only speak about the Fed, but also about growth, inflation, term premium, and fiscal confidence.

If the 10Y rises together with USD and stable equities, the market may be reading growth or yield. If the 10Y rises while equities fall and the dollar moves disorderly, there may be tension from fiscal risk or term premium.

Real Yields

Real yields are essential for reading the dollar, gold, yen, and Nasdaq.

When real yields rise, the dollar tends to receive support because real dollar assets become more attractive. Gold, which does not produce yield, tends to suffer.

When real yields fall, the dollar may lose strength and gold may benefit.

DXY

DXY is useful, but it must be interpreted carefully. It is heavily weighted toward the euro, so it does not perfectly represent the dollar against the whole world.

If DXY rises, one should check whether the dollar is rising against all major currencies or whether the move is mainly driven by EUR/USD. Broad USD strength is more significant than strength caused only by euro weakness.

S&P 500 and Nasdaq

U.S. equities help determine whether the market is in risk-on or risk-off mode.

If the S&P 500 and Nasdaq rise with low volatility, the dollar may weaken against cyclical currencies because the market is seeking risk. If, instead, equities collapse, the dollar may strengthen due to demand for liquidity.

The Nasdaq is particularly sensitive to real rates. Rising real yields can support USD and weigh on growth stocks.

VIX

The VIX measures equity market stress. When it rises, the market tends to reduce risk. This often favors the dollar, especially against AUD, NZD, CAD, and emerging market currencies.

A low VIX, instead, tends to favor carry, equities, and cyclical currencies. In that environment, the dollar may lose defensive demand.

MOVE Index

The MOVE measures Treasury market volatility. It is very important because the Treasury market is the heart of the dollar-based financial system.

If the MOVE rises, it means the U.S. bond market is unstable. This can support USD through demand for liquidity, but it can also signal deeper tensions in the cost of capital.

When VIX and MOVE rise together, the stress signal is more serious.

Gold

Gold is often seen as an alternative to the dollar, but the relationship is not always mechanical.

If the dollar rises together with real yields, gold tends to suffer. If, instead, the dollar rises because of geopolitical fear or systemic stress, gold can rise as well.

So gold and USD can move either in opposite directions or in the same direction, depending on the dominant type of risk.

Oil

Oil influences the dollar through inflation, global growth, and commodity currencies.

A sharp rise in oil can fuel inflation concerns and support U.S. yields. This can help the dollar. But if higher oil improves sentiment toward commodities and supports CAD or exporter currencies, the effect may be less linear.

USD/CNH

USD/CNH is one of the best indicators for understanding the relationship between the dollar, China, and global liquidity.

If USD/CNH rises, there is often pressure on the yuan, Asia, commodities, and cyclical currencies. If it falls, it may support AUD, NZD, EM FX, and global sentiment.

For anyone reading the dollar from a global macro perspective, USD/CNH is almost indispensable.

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Final Summary

The dollar should not be read like a normal currency. It is the price of American liquidity in the world.

When it rises, one must understand whether the market is buying:

1. yield, because the Fed is restrictive and Treasuries offer attractive returns;
2. safety, because the market is afraid and looking for protection;
3. liquidity, because the system needs dollars to fund itself;
4. America, because the United States is growing better than the rest of the world.

When it falls, one must understand whether the market is selling:

1. the U.S. yield advantage;
2. safe-haven demand;
3. the narrative of superior American growth;
4. the need to remain parked in liquidity.

The operational rule is simple:

before interpreting the dollar, identify the market regime.

If the Fed dominates, watch U.S. 2Y yields, real yields, and macro data.
If fear dominates, watch VIX, MOVE, equities, and Treasuries.
If China dominates, watch USD/CNH, AUD/USD, and commodities.
If risk-on dominates, watch cyclical currencies, emerging markets, and global equities.

The dollar becomes clear only when you stop asking whether it is “strong” or “weak” and start asking which function it is performing at that moment: yield, safe haven, funding, or liquidity.