US Dollar Index News: DXY Firms on Euro Weakness Ahead of Fed Policy Meeting

Key Points

• Dollar edges up, Euro falls ahead of central bank meetings.
• Dollar Index close to six-week high, eyes on Fed meeting.
• Recent economic data influences investor expectations and currency values.

U.S. Dollar Inches Upward

The U.S. dollar is witnessing a slight rise against a basket of major currencies on Monday as investors analyze recent economic data in anticipation of the Federal Reserve’s policy meeting. This cautious uptick comes while the euro sees a minor decline amid discussions on interest rate cuts by the European Central Bank.

Dollar Index Near Six-Week High

The dollar index (DXY), a measure against six major currencies, is up by 0.3% at 103.72, hovering close to a six-week peak. January is set to mark a 2% gain for the index, as traders adjust their expectations regarding the timing and extent of U.S. interest rate cuts.

Federal Reserve’s Impact on Market Sentiment

After the Fed’s dovish stance in December, the market initially priced in aggressive easing, expecting a rate cut as early as March. However, with the Fed’s meeting set to begin on Tuesday, investors are largely predicting unchanged rates and are looking for guidance on future rate adjustments.

Economic Data and Inflation Metrics

Recent data, including December’s personal consumption expenditures index (PCE), indicate moderate inflation, aligning with economists’ expectations. This data, along with other key economic reports due this week, is shaping investor outlook.

Euro and Other Currencies

The euro is down 0.4% at $1.0808, with a potential 2% decline for the month following the ECB’s decision to maintain high interest rates. Meanwhile, sterling and the Japanese yen are also showing declines, with the yen’s performance being its weakest since June 2022.

Short-Term Market Forecast

The short-term outlook for the U.S. dollar remains firm, particularly if the Fed maintains its current rate. Investors will be closely watching for any signals from Fed Chair Jerome Powell, along with key labor market data, to gauge the economy’s health and the potential impact of interest rate policies.

Technical Analysis

The U.S. Dollar Index (DXY) is strengthening near a six-week high on Monday after crossing to the strong side of a pivot at 103.572 and the long-term 200-day moving average at 103.511. This levels are new support.

Holding above the support cluster at 103.572 to 103.511 is the key to an even bigger rally with the daily chart indicating the nearest resistance at 105.628.

On the downside, a failure to hold 103.511 will be a sign of weakness. However, losses could be limited because of a support area at 102.853 to 102.838.

The focus this week should be on the pivot-200-day MA setup.  Essentially, look for the uptrend to build over 103.572 and for weakness under 103.511.