United States Dollar Index gains support as strong US data sparks rate hike expectations

• July’s PCE price index rose to 0.2%, reinforcing market bets for another Fed rate hike.
• Oil prices dropped following an Iran-Oman Strait of Hormuz agreement, easing immediate inflation anxieties.
• Investor Stanley Druckenmiller warned that doubling Treasury buybacks harms market credibility and delays debt reform.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is remaining stronger for the second successive day and trading around 99.20 during the European hours on Thursday. The Greenback draws firm support following the release of robust US economic data.

July’s US PCE price index accelerated to 0.2% month-on-month, edging past the 0.1% consensus estimate, while the annual rate held at 3.7%, defying expectations of a slowdown to 3.6%. This unexpected uptick in inflation has reinforced market bets that the Federal Reserve (Fed) could deliver one final rate hike before the end of the year, leaving investors closely watching for policy cues during Fed Chair Kevin Warsh’s upcoming address at the Jackson Hole symposium.

Dollar shorts capped as markets eye Kevin Warsh’s Jackson Hole remarks

Strategists at ING highlight that “tomorrow’s speech at Jackson Hole by Kevin Warsh remains a potentially pivotal event for FX,” cautioning that markets may therefore be “reluctant to build excessive USD shorts today.” They add that, even with “some upbeat risk sentiment after strong Nvidia results,” the Dollar index “may find support above 99.0 into the speech,” underscoring how event risk around Warsh’s remarks is helping to anchor DXY ahead of the Fed’s next policy decisions.

Broader markets, meanwhile, digested shifting geopolitical developments and rising fiscal scrutiny. Crude oil prices extended their decline after diplomatic progress in the Middle East, where Iran and Oman reached an agreement regarding territorial waters and revenue-sharing along the Strait of Hormuz, helping to temper near-term inflation concerns. Concurrently, attention turned to the US Treasury’s proposal to double its bond buyback program, an initiative that drew sharp criticism from billionaire investor Stanley Druckenmiller, who argued it undermines market credibility and skips a vital chance for meaningful debt reform.

Technical Analysis:

In the daily chart, the Dollar Index Spot trades at 99.20, keeping a capped, mildly bearish tone as it holds just above the short-term nine-period Exponential Moving Average (EMA) while remaining clearly beneath the 50-period EMA. The split between price trading under the medium-term EMA and only marginally above the short-term EMA suggests a fragile recovery bias, with the 14-day Relative Strength Index (RSI) at 39.89 hinting at lingering downside pressure rather than a decisive bullish turn.

On the downside, immediate support is clustered around the nine-period EMA at 99.19, a level the index is effectively testing and which would open the way to further weakness if surrendered. On the topside, initial resistance comes at the 50-period EMA at 99.91, and the broader backdrop remains capped while the Dollar Index Spot trades below this medium-term average, leaving any sustainable rebound dependent on a daily close above that barrier.

(The technical analysis of this story was written with the help of an AI tool. Know more.)