US Dollar Index Investors Await Clarity on Fed’s Plans Amid Banking Turmoil

Key Takeaways

1. US dollar index near 5-week low ahead of Federal Reserve’s policy meeting.
2. Market prices in 86% chance of 25 basis point Fed rate hike despite fragile investor sentiment.
3. Investors await clarity on the central bank’s plans following recent banking sector turmoil.

Overview

On Wednesday, the US dollar remained near five-week lows ahead of the conclusion of the US Federal Reserve’s policy meeting. Investors are waiting for clarity on the central bank’s plans following recent turmoil in the global banking sector.

At 03:12 GMT, June U.S. Dollar Index futures are trading 102.840, down 0.057 or -0.06%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $28.04, down 0.01 or -0.02%.

Investors are particularly focused on whether the Fed will maintain its hawkish stance to fight inflation or pause interest rate hikes due to recent banking issues such as bankruptcy and last-minute rescues.

USD Index Near 5-Week Low, Euro at 5-Week High; Other Currencies Mixed

The US dollar index, which measures the currency against six peers, was slightly above the five-week low of 102.99 touched overnight.

The euro was hovering around a five-week high of $1.0789. Meanwhile, the yen weakened 0.04% to 132.59 a dollar, sterling was last trading at $1.2221, up 0.06% on the day, the Australian dollar rose 0.04% to $0.667, and the New Zealand dollar fell 0.16% to $0.618.

Market Prices in 86% Chance of 25 Basis Point Fed Rate Hike Despite Fragile Investor Sentiment

The market is now pricing in around a 14% chance of the Fed not increasing rates, with an 86% chance of a 25 basis point hike.

Previously, the market was pricing in a 24% chance of a 50 basis point hike. Investor sentiment remains fragile, but concerns over the outlook for the banking sector have eased in the past few weeks.

The Fed meeting concludes on Wednesday with a policy statement release at 2 p.m. EDT (1800 GMT) followed by a news conference by Chair Jerome Powell half an hour later.

The Fed faces a difficult decision with a strong labor market and higher than expected February inflation figures. Normally, such circumstances would be ripe for a return to a 50 basis point hike, but concerns over financial stability are holding them back.

Daily June US Dollar Index Technical Analysis

The main trend is down according to the daily swing chart. A trade through 102.635 will signal a resumption of the downtrend. A move through 102.090 will reaffirm the downtrend.

The short-term range is 100.345 to 105.490. The index is currently testing its retracement zone at 102.918 – 102.310.

The main range is 106.917 to 100.345. Its retracement zone at 103.361 to 104.406 is resistance.

Daily June US Dollar Index Technical Forecast

Trader reaction to 102.918 is likely to determine the direction of the June U.S. Dollar Index on Wednesday.

Bearish Scenario

A sustained move under 102.918 will indicate the presence of sellers. The next downside target is 102.310, followed by 102.090. The latter is a potential trigger point for an acceleration to the downside with 100.345 a major downside target.

Bullish Scenario

A sustained move over 102.918 will signal the presence of buyers. This could trigger a surge into 103.361. Overcoming this level will indicate the buying is getting stronger with 104.406 the next likely target.