US Dollar Index Rises To 99.75 High, Yet To Fully Recover
The US Dollar Index (DXY), which tracks the greenback against a basket of currencies, attracted some buyers for the third straight day and rose to a two-week high, around the 99.70-99.75 region during the Asian session on Thursday. The intraday move higher in the US Dollar (USD) was supported by remarks by US President Donald Trump, which added optimism over a potential de-escalation of the trade tensions between the US and China.
In fact, Trump said that there is a “high probability that we will reach a deal with China.” He further added that we have potential trade deals with India, South Korea, and Japan. However, Trump’s top trade official said on Wednesday that trade negotiations with China have not taken place. Moreover, Trump’s rapidly changing stance on trade policies and the prospect of more aggressive policy easing by the Federal Reserve (Fed) might hold USD investors from placing fresh bets.
Investors now seem convinced that the US central bank will resume its rate-cutting cycle in June and lower borrowing costs by 100 basis points (bps) by the end of this year. These expectations were reaffirmed by the release of disappointing US GDP data, which showed that the economy unexpectedly contracted by 0.3% annually in the first quarter of 2025. Moreover, the ADP report on private sector employment indicated that the US labor market is cooling.
Further, the Consumer Price Index and Personal Expenditures (PCE) showed signs of easing inflationary pressures in the US, which gives the Fed more room to cut rates amid uncertainty over Trump’s economic agenda. Hence, it would be prudent to wait for a strong follow-through buying before confirming that the USD has formed a near-term bottom and positioning itself for an extension of its recent decent recovery from multi-year lows touched last week.
Traders now look forward to Thursday’s US economic docket – featuring the release of Weekly Initial Jobless Claims and ISM Manufacturing PMI. Additionally, Friday’s US Nonfarm Payrolls (NFP) report will be looked upon for cues on the Fed’s rate cut path. This, in turn, will play a key role in influencing the USD price dynamics and determine its near-term trajectory.
Source: FXStreet
