US Dollar Index (DXY) advances to two-week high near 99.75; not out of the woods yet

The USD scales higher for the third straight day amid hopes for a US-China trade deal.

Signs of a faltering US economy and aggressive Fed rate cut bets should cap the buck.

Traders now look to US macro data for some impetus ahead of the US NFP on Friday.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, attracts some buyers for the third straight day and climbs to a two-week high, around the 99.70-99.75 region during the Asian session on Thursday. The intraday US Dollar (USD) move higher is backed by US President Donald Trump's remarks, which adds to the optimism over the potential de-escalation of trade tensions between the US and China.

In fact, Trump said that there is a “very good probability we'll reach a deal with China.” He further added that we have potential trade deals with India, South Korea, and Japan. However, Trump’s top trade official said on Wednesday that trade negotiations with China were yet to take place. Moreover, Trump's rapidly shifting stance on trade policies and prospects for more aggressive policy easing by the Federal Reserve (Fed) might hold back the USD bulls from placing fresh bets.

Investors now seem convinced that the US central bank will resume its rate-cutting cycle in June and lower borrowing costs by 100 basis points (bps) by the end of this year. The expectations were reaffirmed by the disappointing release of the US GDP print, which showed that the economy unexpectedly contracted by 0.3% annualized pace during the first quarter of 2025. Adding to this, the ADP report on private-sector employment indicated that the US labor market is cooling.

Furthermore, the Personal Consumption and Expenditure (PCE) Price Index pointed to signs of easing inflationary pressure in the US, providing the Fed more headroom to cut interest rates amid the uncertainty over Trump's economic agenda. Hence, it will be prudent to wait for strong follow-through buying before confirming that the USD has formed a near-term bottom and positioning for an extension of the recent goodish recovery from a multi-year low touched last week.

Traders now look forward to Thursday’s US economic docket – featuring the release of the usual Weekly Initial Jobless Claims and ISM Manufacturing PMI. Apart from this, the US Nonfarm Payrolls (NFP) report on Friday will be looked for cues about the Fed’s rate-cut path. This, in turn, will play a key role in influencing the USD price dynamics and determining the near-term trajectory.