US Dollar (DXY): Traders Cautious as Central Bank Meetings Approach

Highlights

• Traders cautious ahead of central bank meetings.
• Dollar holds its ground near multi-week lows against major currencies.
• Fed expected to pause hikes then possibly raise rates in July. 

Overview

The upcoming central bank meetings are keeping traders cautious, causing the dollar to hold its ground but remain near multi-week lows against major currencies.

At 12:30 GMT, the September U.S. Dollar Index is trading 103.035, down 0.113 or -0.11%. The U.S. dollar index experienced a 0.5% drop last week, its worst since mid-April.

Market Awaits Fed, ECB Decisions

The Federal Reserve’s rate decision announcement is eagerly awaited, and money markets anticipate a pause in interest rate hikes.

On the other hand, economists expect the European Central Bank (ECB) to raise its key interest rate by 25 basis points this week and again in July. The euro slipped slightly in early Asian trade but recorded its first weekly gain in a month.

The forward guidance provided by central banks during the meetings will be of particular interest to investors, as they may signal a pause in rate hikes.

BOJ Expected to Maintain Policy

The Reserve Bank of New Zealand has already signaled a halt to its aggressive hiking cycle, causing the New Zealand dollar to decline. Meanwhile, the Japanese yen steadied against the U.S. dollar, and the Bank of Japan is expected to maintain its ultra-loose monetary policy while forecasting a moderate economic recovery. Japan’s wholesale inflation slowed in May due to falling fuel and commodity prices, indicating a potential easing of cost-push pressures that have driven up consumer inflation.

Fed to Pause, ECB to Raise, BOJ Accomodative

In summary, traders are cautious ahead of central bank meetings, including the Federal Reserve’s, which may result in a pause in interest rate hikes. The U.S. dollar remains near multi-week lows against major currencies. The ECB is expected to raise rates, while the Bank of Japan is likely to maintain its monetary policy. The forward guidance provided by central banks will be closely watched, as it may indicate a pause in rate hikes.

Technical Analysis

The main trend is up, however, momentum is trending lower.

After consolidating for several days, the market is in a weak position, while shifting momentum to the downside.

If the downside momentum continues then we could see the selling pressure extend into 102.208 (S1).

Overcoming 104.205 (R1) will signal a resumption of the uptrend with 105.00 (R2) the next target.

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