United States Dollar Index steadies above 99.00 before Fed Chair Warsh speech
- US Dollar remains steady as investors cautiously await Federal Reserve Chair Kevin Warsh’s Jackson Hole address.
- Strong inflation data increased December rate hike odds to 74%, while September rates will likely stay unchanged.
- Rising US debt crisis concerns and dollar weakness grow as the Treasury expands its debt buyback program.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is gaining minor support after registering minor losses in the previous day and trading around 99.20 during the Asian hours on Friday.
The Greenback holds ground as investors adopt a cautious stance ahead of Federal Reserve (Fed) Chair Kevin Warsh’s upcoming speech at the annual Jackson Hole symposium, where markets hope to gain clarity on the future direction of US interest rates.
Additionally, the US Dollar receives support from stronger-than-expected US inflation data released earlier this week. The higher inflation figures have reinforced market expectations of another interest rate hike before the end of the year, with the CME FedWatch Tool currently pointing to a 74% probability of a rate increase in December. Conversely, traders anticipate the central bank will stand pat at its immediate September meeting, pricing in a 65% chance that rates will stay put for now.
Concerns surrounding a potential US debt crisis and long-term weakness in the US Dollar continue to grow, fueled in part by the US Treasury’s recent expansion of its debt buyback program.
DXY rebound seen as corrective with focus on mid-99 retest
Strategists at Scotiabank maintain that the latest Dollar strength remains countertrend, stressing that “we still rather view DXY gains as a correction against a still deeply entrenched downtrend on the charts.” However, they note that “after a firm rise Wednesday, near-term focus reverts to the index retesting the mid-99 area,” keeping attention on the potential for a further short-term extension of the move even within a broader bearish backdrop.
Hammack leans more hawkish as inflation persistence drives call to act
Fed’s Hammack delivered a distinctly hawkish message, with an 8/10 FXS Speechtracker score modestly above the established baseline of 7.5/10, underscoring heightened concern about persistent inflation. The emphasis that “now is the time to act” and that current policy is not providing restriction, alongside a belief that the neutral rate is on the higher side, points to support for tighter policy than currently priced. Worries about an emerging “inflationary mindset” and potential loss of public confidence in a return to 2% reinforce upside risks for the Dollar as markets reassess the path of rates.
Technical Analysis:
In the daily chart, Dollar Index Spot trades at 99.20. The near-term bias remains bearish as price holds beneath the medium-term 50-day Exponential Moving Average (EMA), while clinging to the short-term nine-day EMA pivot after a sustained pullback. The 14-day Relative Strength Index (RSI) at 39.49 sits below the midline, hinting at lingering downside pressure but without oversold extremes, as the FXS Fed Sentiment Index softens toward 129.11, suggesting a less supportive policy backdrop for the dollar.
On the topside, initial resistance is defined by the 50-day EMA at 99.88, and a sustained recovery above this barrier would be needed to alleviate the current bearish tone and open room for a broader rebound. While immediate horizontal support is not evident in the indicators, a daily close decisively below the nine-day EMA pivot at 99.18 would reinforce downside momentum and keep the index vulnerable to further declines in the short term.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
