US Dollar Index Price Forecast: Bullish Flag breakout sets stage for fresh rally
- The US Dollar Index holds onto its 19-month high of 103.24 on hawkish Fed rhetoric.
- Fed’s interest rate hike prospects have boosted by hawkish Fed speak and hot US CPI figures.
- The breakout of the Bullish Flag pattern backs the possibility of a fresh upside leg.
The US Dollar Index (DXY) trades firmly against its major currency peers during the European trading session on Friday, hovering near its 19-month high of 103.24 posted the previous day.
The DXY has outperformed this week as accelerating United States (US) inflationary pressures have boosted expectations that the Federal Reserve (Fed) will pace up the interest rate cycle.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.74% | 0.87% | 0.96% | 0.96% | 1.06% | 0.42% | 2.05% | |
| EUR | -0.74% | 0.15% | 0.21% | 0.23% | 0.43% | -0.31% | 1.32% | |
| GBP | -0.87% | -0.15% | 0.06% | 0.07% | 0.28% | -0.46% | 1.17% | |
| JPY | -0.96% | -0.21% | -0.06% | 0.00% | 0.05% | -0.51% | 1.05% | |
| CAD | -0.96% | -0.23% | -0.07% | -0.01% | 0.07% | -0.56% | 1.13% | |
| AUD | -1.06% | -0.43% | -0.28% | -0.05% | -0.07% | -0.73% | 0.80% | |
| NZD | -0.42% | 0.31% | 0.46% | 0.51% | 0.56% | 0.73% | 1.65% | |
| CHF | -2.05% | -1.32% | -1.17% | -1.05% | -1.13% | -0.80% | -1.65% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Dollar momentum builds as hawkish Fed rhetoric meets firm us inflation
Strategists at RBC highlight that “U.S. core-inflation pressures are building, while the labour market remains historically tight,” reinforcing the backdrop for further Dollar strength. ING’s FX team adds that “the combination of hawkish Fedspeak and a US CPI beat earlier this week continues to pay dividends for the dollar,” with DXY now “back at Liberation Day (April 2025) levels” and “real front-end rate differentials continuing to fuel strong dollar momentum.” They stress that “importantly, this remains a rates-driven move, with contained excessive USD strength relative to short-term fair value currently built in.”
Looking ahead, ING says “we continue to see upside risks for the dollar in the coming days,” noting that “the Fed's Chris Waller has put a 50bp December move on the radar, and that should keep markets biased towards hawkish interpretations of incoming data.” With “December pricing remains at 28bp, leaving scope for further adjustment,” ING argues that positioning and rate expectations still offer room for the Dollar’s rally to extend.
US Dollar Index Technical Analysis
In the daily chart, Dollar Index Spot trades at 103.17. The near-term bias is bullish, as price holds the breakout of the Bullish Flag chart pattern decisively, and well above the 20-day Exponential Moving Average (EMA) at 102.17.
The Relative Strength Index (14) at 65.16 remains in positive territory but shy of overbought, hinting that bullish momentum is firm yet not extreme.
On the downside, initial support is seen at the 20-day EMA at 102.17, followed by the former channel ceiling around 102.04 and the channel floor near 100.81 if a deeper correction unfolds. On the topside, the next notable structural hurdle is 104.00.
(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.
Recommended Articles
