- DXY consolidates its recent move up back closer to a two-year peak amid the Fed’s hawkish shift.
- Geopolitical risks and trade war fears further underpin demand for the safe-haven Greenback.
- The USD bulls turn cautious and wait for the release of the US NFP report before placing fresh bets.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, stands firm above the 109.00 mark, or its highest level since November 2022 as traders await the US Nonfarm Payrolls (NFP) report before placing fresh bets.
In the meantime, the prospects for slower rate cuts by the Federal Reserve (Fed), which has been a key factor behind the recent surge in the US Treasury bond yields, continue to act as a tailwind for the buck. Apart from this, concerns about US President-elect Donald Trump's tariff plans, geopolitical risks and a weaker risk tone turn out to be other factors underpinning the safe-haven Greenback.
From a technical perspective, this week's goodish rebound from the 107.55-107.50 resistance-turned-support and the subsequent move up favors bullish traders. Moreover, oscillators on the daily chart are holding in positive territory and are still away from being in the overbought zone. This suggests that the path of least resistance for the index is to the upside and supports prospects for further gains.
That said, it will still be prudent to wait for a move beyond the 109.55 area, or over a two-year peak touched earlier this month, before placing fresh bullish bets. The USD might then accelerate the move-up towards the 110.00 psychological mark. The momentum could extend further towards the 110.50-110.55 region en route to the 111.00 mark and the November 2022 peak, around the 111.15 zone.
On the flip side, the 108.75 region could offer some support, below which the index could accelerate the fall towards the 108.15 area en route to the 108.00 mark and the 107.55 horizontal zone. Some follow-through selling below the latter should pave the way for a deeper corrective decline and drag the USD below the 107.00 round figure, towards testing the next relevant support near mid-106.00s.
DXY daily chart
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD keeps range at around 0.6550 after China's Q2 GDP data
AUD/USD keeps its range near 0.6550 in Asian trading on Tuesday, little impressed by the Chinese Q2 GDP beat amid the mixed Retail Sales and Industrial Production data. The US Dollar's upside consolidative mode also leaves the Aussie in a tight range as traders assess Trump's tariff threats ahead of US CPI data.
USD/JPY holds near multi-week top, eyes 148.00 or June swing high
USD/JPY consolidates below the 148.00 neighborhood in the Asian session amid expectations that the Bank of Japan will forgo raising interest rates in 2025 in anticipation of the economic fallout from higher US tariffs. Further, Japanese political woes boost yields to multi-year highs, lending support to the pair.
Gold gains momentum to near $3,350 ahead of US CPI release
Gold price gains ground to near $3,350 during the early Asian session on Tuesday. The precious metal edges higher amid safe-haven demand after US President Donald Trump threatened 100% Russia tariffs. All eyes will be on the US Consumer Price Index inflation data, which is due later on Tuesday.
Bitcoin extends all-time high rally, but selling activity poses pullback risk
Bitcoin marked a new all-time high of $123,091 on Monday following prevailing bullish sentiment in the spot and futures market. Despite the price growth, profit-taking is developing on the side as revealed by a spike in Bitcoin's exchange net inflows.
Five fundamentals for the week: Investors eye tariff circus and US inflation data Premium
Which country will be the next to receive a letter from America? US President Donald Trump has been extending his tariff threats through the weekend. Has the US economy felt the consequences of levies already imposed? These are the topics for another hot summer month.
Best Brokers for EUR/USD Trading
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.