US Dollar (DXY): Weakens as Investors Analyze Fed’s Interest Rate Policy

DXY Highlights

• US Dollar weakens as investors evaluate Fed’s rate policy
• Fed officials’ statements influence the economy and currency
• Progress in debt ceiling negotiations alleviates US default fears

DXY Overview

The US Dollar is edging lower against a basket of currencies on Friday as U.S. Treasury yields fell as investors weighed comments from Federal Reserve officials on the outlook for interest rate policy and assessed the state of the economy.

At 09:19 GMT, June US Dollar Index futures are trading 103.205, down 0.250 or -0.24%. On Thursday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.35, up $0.21 or +0.75%.

Fed Officials Divided on Inflation Target, Impact of Higher Interest Rates

Investors paid attention to statements made by Federal Reserve officials. They sought insights into the central bank’s monetary policy and how it could potentially impact the economy.

On Thursday, Lorie Logan, the President of the Dallas Federal Reserve, stated that she believed pausing interest rate increases based on recent economic data was not justified. She addressed a group of bankers in San Antonio and stated that upcoming economic reports, such as employment and inflation figures, would play a crucial role in the Fed’s decision on interest rates, despite the progress made so far.

Logan’s comments aligned with other central bank officials who highlighted the need for additional measures to address inflation and meet the Fed’s target range. However, there were also officials who took a more cautious approach, like Austan Goolsbee, the President of the Chicago Federal Reserve. During a CNBC interview on Tuesday, Goolsbee emphasized that the full impact of higher interest rates had not been fully realized yet.

Investor Optimism Grows Amid Hints of Rate Hike Pause, Progress on Debt Ceiling

After the central bank’s recent interest rate meeting earlier this month, signs emerged suggesting that the rate hike campaign might conclude soon. This possibility was greeted favorably by numerous investors who had concerns about high interest rates potentially triggering an economic recession.

More Federal Reserve officials, including Chairman Jerome Powell, have scheduled speeches on Friday.

Meanwhile, progress in the negotiations over the debt ceiling deal somewhat eased fears about the possibility of the United States defaulting on its debt. On Thursday, House Speaker Kevin McCarthy hinted that a resolution could be reached as early as next week.

Technical Analysis

The main trend is up. The index extended its rally to 103.490 on Thursday before running into resistance shortly before 103.631 (R3). This is also a potential trigger point for an acceleration into 104.406 (R4).

If 103.631 (R3) continues to reject the index then look for a near-term retreat back to 102.405 (S1).