US Dollar Index Falls as Euro Rises on ECB Rate Hike, Market Predicts Fed to Follow Suit

Key Takeaways

• The US Dollar Index fell on Thursday after the ECB’s rate hike and amid expectations of a Fed rate increase.
• Short-term Treasury yields rose while long-term notes and bonds fell in response to the ECB decision.
• Analysts suggest that the ECB and Fed are trying to balance inflation control and market volatility.

Overview

On Thursday, the euro rose and the dollar fell against a basket of major currencies after the European Central Bank (ECB) raised interest rates as expected. The ECB’s half-percentage point rate hike was aimed at curbing inflation.

June U.S. Dollar Index futures settled at 104.092, down 0.184 or -0.18%. The Invesco DB US Dollar Index Bullish Fund ETF (UUP) finished at $28.36, down $0.03 or -0.11%.

Markets Pricing in Over 80% Chance of Fed Rate Hike Amidst Volatile Price Action

Markets are now pricing in more than an 80% chance that the Federal Reserve will raise rates by a quarter point on March 22.

Treasury yields at the short end rose while notes and bonds with maturities of 10 years or more fell.

The wicked price action this week suggests that the ECB and the Fed are trying to balance between fighting inflation and acknowledging the impact of recent market events.

The ECB and the Fed have raised rates at a record pace in recent weeks, but the recent collapse of Silicon Valley Bank and Credit Suisse’s share plunge have threatened to upend those plans.

However, currency and other markets were calmer on Thursday after Credit Suisse announced that it would borrow up to $54 billion from the Swiss National Bank to shore up liquidity and investor confidence.

In other currencies in the basket, the safe-haven Japanese yen remained strong, while sterling rose by 0.37% on the day, trading at $1.211.

Daily June US Dollar Index Technical Analysis

The main trend is down according to the daily swing chart. A trade through 103.045 will signal a resumption of the downtrend. A move through 105.490 will change the main trend to up.

The main range is 106.917 to 100.345. The index is currently trading inside its retracement zone at 103.631 to 104.406. Trader reaction to this area could determine the direction of the next major move.

The minor range is 100.345 to 105.490. Its retracement zone at 102.918 to 102.310 is the primary downside target.

Daily June US Dollar Index Technical Forecast

Trader reaction to the main 50% level at 103.361 is likely to determine the direction of the June US. Dollar Index on Friday.

Bullish Scenario

A sustained move over 103.631 will indicate the presence of buyers. If this move creates enough upside momentum then look for a surge into the main Fibonacci level at 104.406. Overtaking this level will indicate the short-covering is getting stronger.

Bearish Scenario

A sustained move under 103.631 will signal the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into the minor bottom at 103.045, followed by the short-term 50% level at 102.918. This is a potential trigger point for an acceleration into the short-term Fibonacci level at 102.310.