US Dollar Index Price Forecast: Holds onto gains near monthly high around 99.25

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The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally higher to near its monthly high at 99.25.

The US Dollar Index trades firmly near its monthly high of 99.25.
Investors expect the Fed to hold interest rates steady later this month.
Fed’s Bostic supports a restrictive monetary policy stance as inflation is still higher than the 2% target.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally higher to near its monthly high at 99.25. The US Dollar (USD) trades broadly firm as the Federal Reserve (Fed) is expected to pause its monetary-easing campaign in the policy meeting later this month.

According to the CME FedWatch tool, the Fed is certain to leave interest rates unchanged in the range of 3.50%-3.75% in the January policy meeting. In the last three policy meetings, the Fed delivered three interest rate cuts of 25 basis points (bps) amid weak job market conditions.

The Fed is unexpected to cut interest rates again as the impact of the latest cuts is yet to come into the economy. Also, sticky United States (US) Consumer Price Index (CPI) data for December has propelled speculation for the Fed holding borrowing rates steady this month.

Atlanta Fed Bank President Raphael Bostic said in an event on Wednesday that monetary policy needs to be “restrictive as inflation remains still quite far from the Fed’s target level”.

US Dollar Index technical analysis

The US Dollar Index Spot trades slightly higher to near 99.16 at the time of writing. Price holds above the 20-day Exponential Moving Average (EMA) at 98.73, and the EMA has begun to slope higher, supporting a short-term bullish tone.

The 14-day Relative Strength Index (RSI) at 59.87 remains above its 50 midline, confirming improving momentum.

The rising trend line from 96.21 offers support near 98.11, keeping pullbacks shallow while buyers defend the advance. On the upside, the horizontal resistance at 100.27 will be a key hurdle.

(The technical analysis of this story was written with the help of an AI tool.)

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.