US Dollar Index Price Forecast: Needs a decisive move above 100.56 for fresh upside leg
- The US Dollar clings to gains near 100.40 ahead of meeting between leaders from the US and Gulf nations.
- This week, the meeting between the US President Trump and Chinese leader Xi Jinping will also be in focus.
- Investors are confident that the Fed will deliver one more interest rate hike this year.
The US Dollar (USD) holds onto previous day’s gains on Tuesday, with the US Dollar Index (DXY) trading firmly around 100.40.
The United States (US) currency is expected to remain on the sidelines as financial markets await the outcome of the meeting between President Donald Trump and leaders from Gulf nations, especially Iran, regarding the normalization of energy supply through the Middle East.
This week, investors will also focus on meeting between Chinese leader Xi Jinping and US President Trump, which is expected in the
This week, investors will also focus on meeting between Chinese leader Xi Jinping and US President Trump, which is expected in the September 23-25 period. Both leaders are expected to discuss various issues regarding Artificial Intelligence (AI) and critical minerals.
On the monetary policy front, the Federal Reserve (Fed) is almost certain to deliver one more interest rate hike this year, in an attempt to extend pressure on high inflation. Latest comments from Fed officials have signaled that high inflation is a key concern for them and is not driven by just elevated oil prices.
On Monday, Chicago Federal Reserve (Fed) Bank President Austan Goolsbee said in an event that not just energy, strong demand, tariffs, and other supply shocks may be adding to inflation too.
US Dollar Index Technical Analysis
Bias: In the daily chart, the Dollar Index Spot trades at 100.40. The near-term bias is bullish as price holds above the 20-day exponential moving average (EMA) at 99.71, reinforcing a constructive short-term trend after reclaiming the 100.00 handle.
Momentum: The Relative Strength Index (RSI) at 63.49 sits in positive territory, hinting at firm upside momentum but not yet at overbought extremes.
Support: On the downside, initial support is provided by the 20-day EMA at 99.71, which underpins the advance and would need to give way to signal a deeper corrective phase.
Resistance: On the upside, the DXY needs to break decisively above the Friday high at 100.56 to extend the rally towards 101.00.
(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.
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