US Dollar Index drifts sideways ahead of key jobs and inflation data
- The US Dollar Index trades with some gains near 99.30 on investor caution.
- Trump targets Fed as GDP disappoints and tariffs bite.
- PCE inflation slows but remains sticky, keeping Fed watchers alert.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, hovered near 99.30 on Wednesday as investors remained cautious ahead of the Nonfarm Payrolls and inflation data later in the week. A contraction in US Gross Domestic Product and conflicting inflation signals are keeping market participants on edge.
Daily digest market movers: US Dollar awaits confirmation as economy stumbles
- The United States economy contracted 0.30% in Q1 2025, according to the Bureau of Economic Analysis, missing expectations for 0.40% growth.
- The Core Personal Consumption Expenditures (PCE) Price Index rose 2.60% YoY in March, down from 3.00% in February, aligning with analyst forecasts.
- Personal Income and Personal Spending rose 0.50% and 0.70%, respectively, in March, exceeding expectations and hinting at resilient consumption.
- Private sector job creation slowed sharply to 62,000 in April, the ADP report showed, well below the 108,000 forecast.
- President Donald Trump attacked Federal Reserve Chair Jerome Powell during a Detroit rally, claiming greater knowledge of interest rates.
- Trump signed an executive order easing tariffs on car parts, aimed at reducing inflationary pressure on auto-related goods.
- The broader market reaction to GDP and PCE data remained muted as the US Dollar Index held above 99.30.
- The GDP Price Index rose 2.30% in Q1, below the 2.40% expected, highlighting tempered inflationary momentum across the economy.
- Consumer uncertainty and tariff-related anxiety continue to weigh on hiring, according to comments by ADP Chief Economist Nela Richardson.
- Investors brace for Friday’s Nonfarm Payrolls and ISM Manufacturing PMI, which could significantly impact Fed rate expectations.
Technical analysis: DXY remains range-bound on Wednesday
The DXY trades around 99.40, posting a modest 0.21% gain on the day while remaining range-bound between 99.14 and 99.56. The Relative Strength Index (RSI) sits at 37.42, while the Moving Average Convergence Divergence (MACD) is shifting to a neutral-to-bullish bias. Still, downward pressure persists as the 20-day (100.55), 100-day (105.57), and 200-day (104.46) Simple Moving Averages (SMAs) all generate sell signals.
Bearish confirmation is reinforced by the 10-day (99.59) and 30-day (101.32) Exponential Moving Averages (EMAs). The Williams Percent Range (14) at -71.47 and the Stochastic RSI Fast (3, 3, 14, 14) at 79.79 remain in neutral zones. Support is seen at 99.28 and 99.19, while resistance stands at 99.59, 100.49, and 100.55.
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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