US Dollar (DXY) Index News: Higher on Persistent Inflation Concerns

Strong Ahead of Fed

The US dollar gained strength against a basket of currencies as traders reacted to the latest U.S. economic data and anticipated the outcome of the Federal Reserve’s upcoming meeting. With Treasury yields climbing and persistent inflation concerns, the market’s focus is sharply on the Fed’s next moves.

At 14:29 GMT, the U.S. Dollar Index is trading 105.892, up 0.258 or +0.24%.

Rising Treasury Yields Influence Dollar

On Tuesday, the dollar saw an uptick, buoyed by a significant rise in U.S. Treasury yields, which increased following higher-than-expected labor cost data. The 2-year Treasury yield surpassed the critical 5% mark, reaching 5.012%, while the 10-year yield climbed to 4.657%. These movements highlight growing market expectations regarding the trajectory of U.S. interest rates amidst ongoing economic resilience.

Economic Data Suggests Delayed Easing

Recent U.S. economic indicators have led analysts to adjust their forecasts, pushing the expected start of the Fed’s easing cycle from December 2024 to 2025. The employment cost index, a key measure of wage inflation, rose 1.2% in Q1, surpassing the 1% forecast and signaling persistent inflationary pressures. This data suggests that the Fed may be further from initiating rate cuts than previously anticipated.

Market Sentiment and Fed Expectations

As the Federal Reserve commenced its two-day meeting, market participants are keenly awaiting guidance on interest rate policies. Initially, hopes were for rate cuts as early as June; however, expectations have now shifted to September at the earliest. The CME Group’s FedWatch tool shows a divided outlook among traders, with nearly a 50% probability of maintaining current rates throughout the year.

Forecast: Bullish Outlook for the U.S. Dollar

Given the robust economic data and the potential for further interest rate hikes, the short-term outlook for the U.S. dollar remains bullish. Traders should watch for the Fed’s upcoming decisions and press conference for more definitive signals, but the current environment suggests a strengthening dollar against its major counterparts.

Technical Analysis

The U.S. Dollar Index is higher but trading inside the ranges of the past two days. This indicates trader indecision but also impending volatility, which traders should be bracing for.

While the short-term direction remains most uncertain, the intermediate and long-term trends are clearly defined with the market trading well above 50-day moving average support at 103.726 and 200-day moving average support at 103.716.

Barring any notable whip-saw price action, we anticipate a breakout to the upside over 106.188 and a breakdown under 105.414.