US Dollar Index (DXY) treads water around 97.60 with all eyes on the Fed

• The US Dollar Index remains trapped within previous ranges around 97.60.

• Investors are likely to wait and see ahead of Wednesday's Fed decision.

• Soft US data and moderate inflation figures have boosted hopes of a steeper Fed easing cycle.

The US Dollar has opened the week on a moderate bearish tone, but price action remains trapped within previous ranges, highlighting a hesitant market, with investors looking from the sidelines ahead of the Fed decision, due next Wednesday.

The Index is trading practically flat at 97.50 at the European session opening times, with bears contained above 97.50 and upside attempts limited at 97.70 so far, below Friday’s high, at 97.80.

US Consumer Confidence deteriorates beyond expectations

Recent US data showed that consumer confidence deteriorated more than expected, reaching its lowest levels in four months. The University of Michigan Consumer Sentiment Index dropped to 55.4 from 58.2 in the previous month, well below the 58.0 level anticipated by the market consensus.

US consumers said that higher prices have prompted them to limit their purchasing activity, with 60% mentioning trade tariffs as a key concern. Short-term inflation expectations remained steady, while, in the longer run, price pressures are expected to rise further.

These figures, together with the moderate inflation figures seen earlier last week, practically confirm a 25 bps rate cut by the Fed on Wednesday, and probably also a dovish turn on the bank’s interest rate projections and on Fed Chairman Powell’s speech. Such an outcome would add bearish pressure on the US Dollar.

On Monday, US Treasury Secretary Scott Bessent affirmed that progress has been made to solve the TikTok issue and showed his willingness to maintain “a good relationship with our Chinese counterparts”. These comments have provided some support to the US Dollar.