US Dollar (DXY): Rising as Investors Anticipate Fed’s Decision on Interest Rates

US Dollar Index (DXY) Highlights

• Fed meeting to decide on interest rates
• Focus on when rate hikes may be paused or cut
• Concerns over higher rates and potential economic downturn

US Dollar Index (DXY) Overview

The U.S. Dollar (DXY) is edging higher against a basket of currencies on Tuesday as traders prepare for the start of the U.S. Federal Reserve’s two-day meeting, starting later today. A weaker Japanese Yen and Euro are the primary drivers of today’s early strength.

At 12:30 GMT, June US Dollar Index futures are trading 101.960, up 0.040 or +0.04%. On Monday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.90, up $0.15 or +0.52%.

Investors Await Fed Rate Decision

The Fed’s latest meeting is scheduled to begin on Tuesday and is expected to conclude on Wednesday. Investors are eagerly awaiting fresh policy decisions and guidance from the central bank, with many predicting a further 25 basis point interest rate hike.

Inflation and Rate Hike Worries

In addition to the interest rate decision, investors will be paying close attention to any indications about when rate hikes may be paused or rate cuts could potentially begin. Since the last meeting, Fed officials have suggested that rates may need to remain elevated for an extended period due to persistently high inflation levels.

Investors Fear Economic Downturn Risk

On Friday, the Fed’s preferred inflation metric, the personal consumption expenditure price index, reported a 0.3% monthly increase, consistent with expectations.

However, investors are becoming increasingly concerned that higher interest rates may put pressure on the economy and potentially lead to a downturn. According to data released last week, gross domestic product (GDP) in the first quarter only increased at an annualized pace of 1.1%, which fell far below estimates.

Crucial Jobs Data on Tap

On Tuesday, JOLTS job openings figures for March are anticipated to provide additional insights into the current state of the U.S. economy.

Technical Analysis

The main trend changed to up last Friday when buyers took out the previous main top at $101.940. The next targets are a Fibonacci level at $102.310, followed by a main top at $102.480. Taking out the main top will reaffirm the uptrend with a 50% level at $102.918 the next target.

The nearest support is a minor pivot at 101.390, followed by a short-term support zone at $101.230 – 101.039. This is the last support area before the 101.039 main bottom. A trade through this level will change the main trend to down.

For a look at all of today’s economic events, check out our economic calendar.