US Dollar Index Price Forecast: Softens to near 101.00, while technicals remain bullish
- US Dollar Index weakens to around 101.10 in Wednesday’s early European session.
- The DXY maintains a constructive bias above the 100-day SMA, with bullish RSI momentum.
- The immediate resistance level emerges at 101.50; the initial support level to watch is 101.05.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 101.10 in the early European trading hours on Wednesday. The DXY declines as traders have largely priced out expectations of a US Federal Reserve (Fed) rate hike this month following softer-than-expected US June consumer and producer price inflation data.
Cleveland Fed President Beth Hammack said on Friday that interest rates may need to rise to beat back persistent inflation. However, markets continue to expect no change to rates at the Fed's next meeting on July 29, with Fed funds futures pricing an implied 74.9% odds of a rate hold, compared to a 61.5% probability a month ago, according to the CME FedWatch tool.
Technical Analysis:
In the daily chart, the near-term bias of the Dollar Index Spot is bullish as price holds above the 100-day simple moving average (SMA) and the Bollinger middle band, suggesting ongoing demand on minor pullbacks. The Bollinger upper band caps the upside in the very short term, while the Relative Strength Index (RSI) at 57 stays in positive territory, hinting at constructive but not overextended momentum.
On the topside, immediate resistance is located at the Bollinger upper band near 101.50. A clear break above this level would open the way for the June 24 high of 101.80.
On the downside, initial support emerges at the Bollinger middle band at 101.05, followed by the lower band near 100.55, with deeper support at the 100-day SMA around 99.62, which reinforces the medium-term bullish structure as long as it holds.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Hammack flags broad-based inflation pressures, supporting a more hawkish Fed tone
Fed’s Hammack delivers a notably more hawkish tone, with a 7.2/10 FXS Speechtracker score standing above the 6.6/10 historical average, underscoring heightened concern about persistent inflation. The emphasis on businesses calling for action to curb inflation and consumers unable to make ends meet, alongside references to energy, supply chains, insurance, and AI data center pressures, points to broad-based and socially sensitive price strains even amid solid growth and stable consumer spending. Persistently high inflation being framed as the “bigger concern” reinforces a bias toward keeping policy restrictive for longer, which is supportive of the Dollar.
The FXS Fed Sentiment Index has risen by 2.06 points to 128.64, firmly in hawkish territory and consistent with the above-baseline FXS Speechtracker score. An index level well above 100 signals that, despite decent growth and spending data, the balance of Fed communication is skewing toward inflation vigilance, a backdrop that typically underpins the Dollar against the Euro and Yen.
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.
