US Dollar Index (DXY) Price Forecast: Strengthens to 100.00; targets YTD peak ahead of Fed
- DXY regains positive traction as inflation concerns temper Fed rate cut bets.
- Bulls await the Fed policy update on Wednesday before placing fresh bets.
- The technical setup backs the case for a further near-term appreciating move.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, attracts some dip-buyers following the previous day's pullback from its highest level since May 2025. The index sticks to modest intraday gains through the early European session on Tuesday and is currently placed around the 100.00 psychological mark, up over 0.20% for the day.
As the US-Israel war on Iran enters its third week, the disruption of shipping through the Strait of Hormuz – a key chokepoint for a fifth of global oil supply – continues to fuel inflationary concerns. Investors now seem convinced that the US Federal Reserve (Fed) could delay cutting interest rates amid worries about the war-driven surge in consumer prices, which, in turn, helps the US Dollar (USD) to regain positive traction. Bulls, however, might opt to wait for the outcome of a two-day FOMC meeting on Wednesday before placing aggressive bets.
From a technical perspective, the near-term bias is mildly bullish as the DXY holds well above the rising 100-period Moving Average (MA) on the 4-hour chart, underscoring an intact upward structure despite the latest pause. Moreover, the Relative Strength Index (RSI) around 58 remains above the 50 midline, suggesting buyers still retain control while overbought conditions seen above 70 in the prior swing have eased.
That said, the Moving Average Convergence Divergence (MACD) histogram has slipped toward neutral, and the MACD line now hovers close to the signal line, hinting at fading upside momentum after the recent advance. Hence, it will be prudent to wait for some follow-through buying beyond 100.50 before positioning for further gain. A decisive break would open the way toward the 100.90–101.00 band.
On the downside, initial support emerges at the psychological 100.00 area, and a sustained hold above the said handle would keep the bullish bias intact. This is followed by 99.80 and then the 99.50 region. A break below 99.50 would shift the focus to a deeper corrective phase and expose the 99.00 handle and the dynamic support of the 100-period MA just below.
(The technical analysis of this story was written with the help of an AI tool.)
DXY 4-hour chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
