US Dollar Index Price Forecast: Holds gains above 99.50, while bearish bias persists
- US Dollar Index strengthens to around 99.75 in Thursday’s early European session.
- The negative tone of the DXY remains intact with bearish RSI momentum.
- The initial support level to watch is 99.45; the first upside barrier emerges at 100.70.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 99.75 in the early European trading hours on Thursday. The DXY gains traction as the negotiations between the US and Iran remain highly uncertain, boosting safe-haven flows.
Iran’s Deputy Foreign Minister, Kazem Gharibabadi, said on Wednesday that Iran and Oman are close to finalizing a proposed framework for commercial shipping through the Strait of Hormuz, per CNN. Nonetheless, it still wouldn’t automatically reopen the critical waterway.
Early Wednesday, US President Donald Trump stated that he had very productive talks with Iran. Conflicting rhetoric from the US and Iranian officials about a potential deal fuels market concerns, lifting the US Dollar against its rivals.
Hawkish comments might contribute to the DXY’s upside. Federal Reserve (Fed) Kansas City President Jeff Schmid said on Wednesday that tighter monetary policy may be required to bring inflation back to the central bank's 2% target.
Markets have priced in nearly a 54.7% chance that the Fed will hike rates at the September meeting, according to the CME FedWatch tool.
US ADP miss highlights uneven hiring but firmer wage dynamics
Analysts at Danske Bank note that the latest US labour market data painted a mixed picture, with ADP's National Employment Report for July "came in weaker than expected at 44k (cons: 70k), with hiring uneven across sectors." They highlight that "education and health care added jobs, while leisure and hospitality declined," underscoring the sectoral divergences beneath the headline miss. At the same time, Danske flags that "it was noteworthy that ADP reported an uptick in wage growth among workers changing jobs," which they interpret as evidence that "labour market conditions are tightening and workers' bargaining power is improving despite slow aggregate job growth." In their view, "at the margin, this is a hawkish signal for the Fed."
Schmid flags AI-driven inflation risks, backing tighter Fed stance
Fed’s Schmid delivers a moderately hawkish message, with a FXS Speechtracker score of 7.3/10, slightly above the 7/10 historical average and consistent with a firm policy bias. The emphasis that current Fed policy is “not tight,” that AI-related investment is fueling inflation, and that tighter monetary policy is still required to bring PCE-based inflation back to the 2% target underscores concern that inflation remains “too high” and “worrisome” despite resilient growth and a roughly balanced labor market. Schmid’s caution that recent disinflation and energy cost relief may be temporary, and that supply-driven price pressures must not be overlooked, reinforces a stance that leans toward further or prolonged restraint rather than early easing.
The FXS Fed Sentiment Index fell by 0.96 points but remains elevated at 145.80, signaling that overall Fed communication is still firmly in hawkish territory despite the modest pullback. In this context, Schmid’s above-baseline FXS Speechtracker score aligns with an environment where the FXS Fed Sentiment Index continues to reflect a strong bias toward keeping policy restrictive, even as incremental shifts suggest slightly less hawkishness at the margin.
Technical Analysis: The bearish outlook of the US Dollar Index remains intact
In the daily chart, the near-term tone of Dollar Index Spot is bearish, with price now slipping just above the 100-day simple moving average (SMA), which acts as immediate support, and well below the Bollinger Bands’ 20-day middle SMA that caps the topside. The Relative Strength Index (RSI) at 36.10 sits near oversold territory, hinting that while downside pressure persists, sellers may begin to lose momentum as the index stretches away from its recent mean.
On the downside, initial support is seen at the lower Bollinger Band at 99.45, where a stronger floor could emerge if the index extends its slide. The next contention level is located at the May 29 low of 98.75.
On the topside, the first resistance comes at the Bollinger middle band at 100.70, followed by the upper band at 101.95; a sustained recovery above these levels would be needed to ease the current bearish bias and signal a more constructive medium-term rebound.
(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.