US Dollar (DXY): Global Central Banks’ Hawkish Sentiments Drive Dollar Support

Highlights

• Dollar gains support on hawkish sentiments, while pound struggles and Australian/New Zealand dollars face challenges.
• Surprising rate hikes and hawkish comments from central banks spark recession fears.
• Yen remains under pressure with Bank of Japan’s ultra-dovish stance.

Overview

The dollar gained support on Friday as global central banks, including the Federal Reserve, expressed hawkish sentiments, raising concerns about potential economic downturns. The pound struggled to hold gains after the Bank of England’s larger-than-expected rate rise, fueling fears of a recession in the UK. While higher rates typically support currencies, investors sought safe-haven assets like the US dollar due to concerns about economic downturns. The Australian and New Zealand dollars also faced challenges as risk appetite declined.

Surprising rate hikes and hawkish comments from central banks worldwide renewed fears of further policy tightening to combat inflation, potentially risking recession. Norway’s central bank surprised markets with a rate hike and signaled another in August, while the Swiss National Bank raised its policy interest rate. The recent aggressive actions by central banks have caught markets off guard, questioning the trend of rate hikes. The euro fell, and the US dollar index rose, reversing previous weeks’ losses.

The yen remained under pressure as the Bank of Japan maintained its ultra-dovish stance. Japan’s core consumer inflation exceeded expectations in May, pressuring the BOJ to phase out its stimulus. The yen fell slightly against the dollar, hovering near a seven-month low. Fed Chair Jerome Powell emphasized a cautious approach to interest rate movements, with money markets now expecting a 74% chance of a rate hike at the next policy meeting.

In summary, the dollar drew support amid risk aversion caused by hawkish central bank comments. The pound struggled, and the Australian and New Zealand dollars faced challenges. Surprising rate hikes and concerns about economic downturns influenced market sentiment. The yen remained weak, and the US dollar gained ground. The cautious pace of interest rate adjustments by the Fed and inflation pressures in Japan played a role in currency movements.

Technical Analysis

The US Dollar Index experienced a slight downward movement, trading at 102.808 compared to the previous 4-hour close at 103.003. It remains below the 200-4H moving average of 103.233, indicating a bearish sentiment. However, it is still above the 50-4H moving average of 102.583, suggesting relative strength. The 14-4H RSI reading of 58.95 falls within the neutral range, indicating a balanced sentiment. The main support area is between 102.113 and 101.930, while the main resistance area ranges from 103.280 to 103.424. Based on the available information, the market sentiment for the US Dollar Index appears slightly bearish.