US Dollar (DXY) Index News: Rally Continues Ahead of CPI Report, Fed Decisions

Dollar Rally Boosted by Euro Weakness and Fed Speculations

The U.S. Dollar Index (DXY) surged on Monday, driven by a combination of euro depreciation and expectations of the Federal Reserve delaying a rate cut. This bullish movement saw the dollar breaking above its long-term moving average, signaling strength against a basket of major currencies.

At 16:30, the U.S. Dollar Index is trading 105.166, up 0.232 or +0.22%.

Euro Weakness

The euro dropped significantly following political uncertainty in France, where far-right gains in the European Parliament elections led President Emmanuel Macron to call a snap national election. This instability, combined with strong U.S. economic data, exerted additional downward pressure on the euro. As a result, the euro fell 0.6% against the dollar to $1.0733, its lowest since early May.

Anticipation of Fed’s Decision

Investors are closely monitoring the Federal Reserve’s upcoming policy meeting and inflation data releases. The Fed is expected to leave interest rates unchanged, maintaining this stance through July. According to CME Group’s FedWatch Tool, there is currently a 50% chance of a rate cut in September. The Fed’s guidance and economic outlook, particularly around inflation trends, will be scrutinized for future policy directions.

Impact of U.S. Economic Data

Last week’s robust U.S. jobs report, with nonfarm payrolls increasing by 272,000 in May, far exceeded expectations. This has reinforced a hawkish sentiment among traders, who now price in a lower probability of rate cuts this year. The upcoming consumer and producer price index reports will further inform the Fed’s inflation assessment and interest rate strategy.

Market Movements

The dollar strengthened against major currencies, with the Dollar Index rising 0.4% to 105.27, a one-month high. The yen also weakened, trading at 156.93 per dollar. Japan’s economic focus this week includes the Bank of Japan’s policy meeting, where the central bank is expected to maintain current interest rates but may offer new guidance on its bond-buying strategy.

Market Forecast

Given the current economic indicators and geopolitical factors, the U.S. Dollar Index is likely to remain strong in the short term. Continued euro weakness and firm U.S. economic data support a bullish outlook for the dollar. Traders should watch for potential volatility around the Fed’s policy announcements and upcoming inflation data, which could further influence the market’s direction.

Technical Analysis

The direction of the U.S. Dollar Index into the close on Monday is likely to be determined by trader reaction to the 50-day moving average at 105.090. A sustained move over this level could create the momentum needed to challenge the next resistance at 105.628. A failure to hold this level will be a sign of weakness with the 200-day moving average at 104.447, major support.