Dollar Index Rises Slightly, Markets Wary of Fed's Hawkish Tone and Pressure from Rival Currencies
The US dollar index (DXY) edged higher on Tuesday, driven by investor caution regarding the Federal Reserve's policy direction and stabilizing global economic developments. Meanwhile, major dollar rivals, such as the euro and yen, saw limited weakening, as uncertainty over the direction of global interest rates continued to loom over the market.
According to Investing.com data, the DXY traded in the 98.90–99.60 range, up slightly by around 0.02% in the Asian session. This strengthening marks the dollar's attempt to maintain its momentum after being pressured last week by speculation of further interest rate cuts by the Fed.
"Investors are now reassessing the dollar's position following the Fed's more cautious statement regarding the pace of monetary easing. The relatively more solid US economy compared to Europe and Asia remains a key supporting factor," wrote FXStreet in its analysis.
Fundamentals: The Fed is Cautious, Economic Data Will Be Decisive
Fundamentally, the market is awaiting the release of further US PCE inflation and employment data. These two indicators will be key to determining the direction of future monetary policy. Although inflation is showing signs of slowing, Fed officials continue to emphasize the importance of keeping interest rates at a "restrictive" level to ensure prices are truly under control.
"The Fed appears reluctant to cut aggressively because it doesn't want to lose its recently restored inflation credibility," JPMorgan economic analyst Lisa Bernhardt told Reuters.
Meanwhile, improving US-China trade relations following the Trump-Xi meeting in Malaysia have also bolstered market optimism. However, for the dollar, this situation has two sides: on the one hand, it suppresses demand for safe-haven assets, but on the other, it confirms the stability of the US position in global markets.
Technicals: DXY Faces Resistance at 100.00 and Support at 98.50
Technically, the dollar index faces strong resistance at 100.00, while the nearest support is at 95.00. If the 100.00 level is successfully broken, the opportunity for strengthening towards the psychological 101.00 area is wide open. However, failure to maintain momentum could trigger a correction towards 98.50–98.00.
The RSI indicator is approaching overbought territory, signaling a potential short-term decline, while the 50-day moving average (MA) still supports the intermediate uptrend.
DXY's Relationship with Rival Currencies
The dollar's rise pressured several other major currencies. EUR/USD fell to around 1.1569, reflecting pressure on the euro due to the weak eurozone economic outlook. USD/JPY strengthened towards 154.00, with the yen remaining pressured by the Bank of Japan's ultra-loose policy. Meanwhile, GBP/USD moved flat around 1.3151, awaiting new direction from UK inflation data this week.
"Today's dollar movement suggests the market is still not ready to let go of the greenback, especially amid divergent monetary policy directions between the US and other G7 countries," wrote Bloomberg Intelligence in a report.
Implications for Gold and Global Markets
The strengthening dollar tends to put pressure on gold prices, which are hovering around US$4,000 per troy ounce. However, some analysts believe the dollar's current upward momentum is temporary, as the market is still awaiting certainty regarding the Fed's policy.
"As long as global economic uncertainty persists, any dollar strengthening will be limited. Gold still has the potential to strengthen if US economic data weakens," said Kitco Metals analysts.
Conclusion: The Dollar Remains Dominant, But Caution is Rising
Overall, the dollar index continues to demonstrate resilience amidst global policy shifts. However, with the potential for an economic slowdown and a faster-than-expected decline in inflation, the market is now bracing for a possible change in monetary policy direction in the coming quarters.
Source: Newsmaker.id
