US Dollar Forecast: DXY Rises as Hawkish Fed Comments Lift Breakout Prospects

U.S. Dollar Index Tests 50-Day MA After Hawkish Comments from Fed’s Goolsbee

The U.S. Dollar Index is trading higher on Tuesday after hawkish comments from Chicago Federal Reserve President Austan Goolsbee. The market is currently testing the 50-day moving average, which could be the trigger point for an upside breakout and a change in the intermediate trend.

The index was edging a little higher early in the session when Goolsbee sparked a surge after he said that interest rate cuts aren’t the right move until inflation peaks and starts to move lower.

Goolsbee Warns Against Front-Loading Rate Cuts While Inflation Stays Above Target

With the recent Consumer Price Index (CPI) and the Fed’s favorite Personal Consumption Expenditures (PCE) Price Index both on the strong side of the central bank’s 2% target, Goolsbee noted that policymakers “have been burned by assuming transitory inflation” before and can’t afford to make the same mistake twice.

“I feel that front-loading too many rate cuts is not prudent in that circumstance,” he said at the National Association for Business Economics meeting in Washington, D.C. “People express that prices are one of their most pressing concerns. Let’s pay attention. Before we cut rates more to stimulate the economy, let’s be sure inflation is heading back to 2%.”

Those comments are hawkish and don’t sound like they are coming from an FOMC member poised to approve a rate cut in March or June. Currently, the chances of a March rate cut are 4.1%. The chances of a June rate cut stand at 43.9%, down from 50.2% last week.

Goolsbee went on to say that a 3% inflation rate “is not good enough, and it’s not what we promised when the Federal Reserve committed to the 2% mandated target.”

Waller Also Leans Hawkish as Two Fed Voices Put a Floor Under the Dollar

Earlier in the year, Goolsbee had stated that he thinks the Federal Reserve will be able to cut later in the year, but even that is now being questioned.

On Monday, Fed Governor Christopher Waller also leaned toward no cut when he suggested that if the jobs picture continues to improve, that would further lessen the case for cuts.

Both comments from Goolsbee and Waller are supportive for the dollar. Without a concentrated effort from the global community to drive the greenback lower, we may have a floor in place with room to run if it can overcome resistance.

50-Day MA Breakout Could Trigger a Quick Surge to the 200-Day MA at 98.394

Technically, DXY is currently in a position to overcome the 50-day MA at 97.941 and a short-term Fibonacci level at 97.987. This could trigger a quick surge into the 200-day MA at 98.394, which is the last potential resistance before the 99.492 main top.

On the downside, support is layered at 97.522, 97.286 and 97.100. The major support zone is 96.762 to 96.476.

More Information in our Economic Calendar.