1. Trade Deficit

2. Unemployment Rate

3. Profit Earning

4. Growth of Productivity

5. U.S. interest rate trends

6. Stock market performance

7. Other major currencies Relative Strength—Euro

This is a brief answer to the above. If you don’t find it difficult to understand, please see the answer below:

Overall Performance of the U.S. Economy—Currency Strength and weakness are the manifestation of national strength

a. Trade Deficit: The U.S. economy has continued to expand since the second half of 1999. Stronger consumer demand and a substantial expansion of corporate investment have led to a continued substantial increase in imports. , but because the export volume failed to grow accordingly, the gap in the trade deficit continued to expand. Logically speaking, this must be solved through the effect of currency depreciation. However, because the United States still adheres to the strong dollar policy, its trade deficit continues to expand. If things go on like this, it will inevitably affect the strong position of the US dollar.

b. Unemployment Rate: At the end of 1999, the U.S. unemployment rate dropped to a new low since the 1960s. Due to concerns that the tightening of the labor market would lead to inflation, thereby compressing corporate profits, the FED began to adopt a series of measures. Tightening monetary policy almost caused a hard landing for the US economy, and the unemployment rate reached a new high in recent years in March 2001.

c. Corporate Profit (Profit Earning): Affected by the surge in labor costs and capital costs and the slowdown in consumption, the profit level of American companies has shown a downward trend year by year. Corporate profits have been continuously released this year. Early warnings and lowering of financial forecasts will seriously threaten the strong economic position of the United States.

d. Growth of Productivity: For productivity to continue to grow, even if labor costs increase, even if employment costs increase, it will not lead to inflation. Therefore, the key to whether the United States can smoothly land softly will fall on productivity. However, capital utilization and capital equipment expenditures have hit new lows again and again this year, which is not optimistic news for productivity improvements. Recently, all walks of life, including Greenspan, have urged the Bush administration to accelerate the training of skilled labor. This plan will have the opportunity to significantly improve the structure of the labor force and thereby increase productivity. Overall, it is expected that productivity growth will gradually level off this year, while it will still have the power to curb inflation.

2. U.S. interest rate trends

Because the United States has a very strong and independent central bank, monetary decisions have a critical impact on its overall economic performance. Therefore, each Federal Reserve meeting Routine interest rate adjustment meetings will have more or less impact on the foreign exchange market. Since interest rates directly affect the level of fixed income from foreign currency deposits, the strength of the U.S. dollar index is greatly affected by interest rate adjustments. In the past, when fixed currency returns were emphasized, the higher the deposit interest rate of a country's currency, the more international funds could be attracted for arbitrage and the exchange rate would strengthen. However, after the surge in high-tech stocks in the U.S. stock market in recent years, due to rising interest rates Unfavorable to the overall performance of the stock market, it has caused international funds to be remitted out of countries that have adopted tightening monetary policies, and the exchange rate has therefore weakened. The direction of interest rates depends on the above-mentioned overall economic factors, such as inflation rate, money supply growth rate, economic growth rate, central bank policies, etc. Therefore, the market's expectations for future U.S. interest rate levels will affect the price of the U.S. dollar index.

3. Stock market performance

If a country's stock market performs well, it will attract international capital inflows for investment, thereby driving up the exchange rate. Representing the new economic boom in the U.S. stock market, the staggeringly high return on investment has made high-tech stocks a super money-attracting machine in the world, and the U.S. stock and foreign exchange markets have also simultaneously launched a wave of bullish trends.

4. The relative strength of other major currencies - the euro

After the launch of the euro, the German mark, the French franc, the Italian lira, the Dutch dollar, and the Belgian franc became five-in-one. The euro has suddenly become the most important weight currency, accounting for 57.6% of the total dollar index. It has a huge impact, and the weight has also formed a trend of being concentrated in the euro, yen, and pound. Therefore, the monetary policy trends of the European Central Bank and the economic performance of the Eurozone are indispensable factors for observing the strength of the US dollar index.

(3) Fundamental factors affecting the US dollar

Federal Reserve Bank (Fed): The Federal Reserve Bank of the United States, referred to as the Federal Reserve, the central bank of the United States, formulates monetary policy completely independently. Ensure that the economy achieves maximum non-inflationary growth. The Fed's main policy indicators include: open market operations, discount rate (Discount Rate), and federal funds rate (Fed Funds rate).

Federal Open Market Committee (FOMC): The Federal Open Market Committee, the FOMC is mainly responsible for formulating monetary policy, including formulating eight key interest rate adjustment announcements each year. The FOMC*** has 12 members, consisting of 7 government officials, the president of the New York Federal Reserve Bank, and 4 members elected for one-year terms from the presidents of the other 11 local Federal Reserve banks.

Interest Rates: Interest rate, namely Fed Funds Rate, is the most important interest rate indicator and is also the overnight lending rate for mutual loans between savings institutions. When the Fed wants to send a clear monetary policy signal to the market, it will announce a new interest rate level. Each such announcement causes major turmoil in stock, bond and currency markets.

Discount Rate: The discount rate is the interest rate charged by the Fed when commercial banks apply for loans from the Fed due to emergency situations such as reserve funds. Although this is a symbolic interest rate indicator, its changes can also convey strong policy signals. The discount rate is generally less than the federal funds rate.

30-year Treasury Bond: The 30-year Treasury bond, also called a long-term bond, is the market's most important indicator of inflation. In most cases, the market uses the bond's yield rather than its price to measure the grade of a bond. Like all bonds, the 30-year Treasury bill has a negative correlation with prices. There is no clear link between long-term bonds and the dollar exchange rate, but there is generally the following link: a fall in bond prices due to inflation, that is, a rise in yields, may put pressure on the dollar. These considerations may be caused by some economic data.

However, with the implementation of the U.S. Treasury Department’s “borrow new debt to repay old debt” plan, the issuance of 30-year Treasury bills began to shrink, and then the status of the 30-year Treasury bill as a benchmark began to give way to 10-year Treasury bill.

Depending on different stages of the economic cycle, some economic indicators have different impacts on the US dollar: when inflation does not become a threat to the economy, strong economic indicators will support the US dollar exchange rate; when inflation affects the economy When the threat is more obvious, strong economic indicators will suppress the U.S. dollar exchange rate, and one of the means is to sell bonds.

As a benchmark for asset levels, long-term bonds are generally affected by global capital flows. Financial or political turmoil in emerging markets will push up U.S. dollar assets. At this time, U.S. dollar assets, as a safe haven, will indirectly push up the U.S. dollar exchange rate.

3-month Eurodollar Deposits: 3-month Eurodollar deposits. Eurodollars are U.S. dollar deposits held in foreign banks in the United States. For example: Japanese yen deposits deposited in foreign banks in Japan are called "European yen". This difference in deposit rates can serve as a valuable benchmark for evaluating foreign exchange rates. For example, taking USD/JPY as an example, when the positive difference between Eurodollar and Euroyen deposits is larger, the USD/JPY exchange rate is more likely to be supported.

10-year Treasury Note: 10-year Treasury bill. When we compare the yields on the same types of bonds across countries, we generally use the 10-year Treasury bill. Differences in yields between bonds affect exchange rates. If the yield on U.S. dollar assets is high, the exchange rate will push up the U.S. dollar exchange rate.

Treasury: Ministry of Finance. The U.S. Treasury Department is responsible for issuing government bonds and formulating the fiscal budget. The Treasury Department has no say in monetary policy, but its comments on the dollar may have a greater impact on the dollar's exchange rate.

Economic Data: Economic data. Among the economic data published in the United States, the most important include: labor force report (pay level, unemployment rate and average hourly earnings), CPI (Consumer Price Index), PPI, GDP (gross domestic product, gross domestic product) , international trade levels, industrial production, housing starts, housing permits and consumer confidence.

Stock Market: Stock market. The three major stock indexes are: Dow Jones Industrials Index (Dow), S&P 500 (S&P 500 Index) and NASDAQ (NASDAQ Index). Among them, the Dow Jones Industrial Index has the greatest impact on the U.S. dollar exchange rate. Since the mid-1990s, the Dow Jones Industrial Average has had a strong positive correlation with the U.S. dollar (as foreign investors buy U.S. assets). The three main factors affecting the Dow Jones Industrial Index are: 1) company income, including expected and actual income; 2) interest rate expectations; 3) global political and economic conditions.

Cross Rate Effect: Cross rate effect. The rise and fall of the cross will also affect the U.S. dollar exchange rate.

Fed Funds Rate Futures Contract: Federal funds rate futures contract.

This contract value shows the market's expectations for the federal funds rate (related to the expiration date of the contract) and is the most direct measure of the Fed's policy.

3-month Eurodollar Futures Contract: 3-month Eurodollar futures contract. Like the federal funds rate futures contract, the 3-month Eurodollar futures contract also has an impact on 3-month Eurodollar deposits. For example, the interest rate difference between the 3-month Eurodollar futures contract and the 3-month European yen futures contract is the basic change that determines the future trend of USD/JPY.