US Dollar Index Price Forecast: Extends recovery above 20-day EMA

• The US Dollar gains significantly to near 99.46 on hopes for Trump developing appetite for higher interest rates.
• The Fed is highly anticipated to hike interest rates on Wednesday.
• Saudi's major pipeline shutdown on Friday has prompted oil prices.

The US Dollar (USD) starts the Federal Reserve’s (Fed) monetary policy week on a strong note, which is scheduled for Wednesday. In the European trading session, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.37% higher to near 99.46.

It seems a number of tailwinds, from a fresh increase in hawkish Federal Reserve (Fed) interest rate prospects to surging oil prices are supporting a significant increase in the US Dollar, but neutral comments from United States (US) President Donald Trump regarding the Fed’s monetary policy decision on Wednesday appear key reason behind the jump.

Fed rate expectations climb on higher US monthly CPI data

Analysts at MUFG/BTMU note that “US August CPI inflation came in higher than expected,” prompting “a repricing higher of Fed fund rate hike expectations by the market,“ with investors now "pricing a 88% probability of a hike in September, together with a terminal rate in 2027 of 4.53% (~3.6 hikes), up from 4.29% earlier last week (~2.7 hikes)."

Brent extends gains as Middle East supply risks escalate

Analysts at Deutsche Bank highlight that the latest move in Brent comes “following the precautionary shutdown of a major Saudi pipeline late on Friday following recent attacks, and the postponement of today's planned meeting between Iran and other Gulf states to discuss the creation of a temporary shipping corridor through the Strait of Hormuz.” They note that these developments have reinforced market concerns around regional supply security and key shipping routes.

Technically, higher oil prices de-anchor global inflation expectations, a scenario that prompts expectations of interest rate hikes by central banks. The US Dollar outperformed its peers when oil prices rallied at the onset of the Middle East war.

However, the real reason behind US Dollar’s strong upside move appears to be absence of demand for interest rate cuts in comments from US President Trump while speaking to reporters at the Irish Open golf tournament.

US President Trump said that he did not ​know whether Fed policymakers will raise interest rates ​at their meeting this week. But he said the US "should be paying the lowest interest rate in the world" ​no matter what the Federal Reserve's data indicates about inflation and the economy, Business Standard reported.

This appears to be a serious shift in US President Trump’s view on interest rates if compared with his comments in the former Fed Chairman Jerome Powell term where he [Trump] criticized him [Powell] several times and also warn to fire him for not reducing interest rates.

The adaptation of a neutral view by US President Trump on interest rates also improves Fed’s credibility, which was hurt badly as he strongly stressed on lower interest rates.

US Dollar Index Technical Analysis

Bias: In the daily chart, Dollar Index Spot trades at 99.46. The near-term bias turns bullish as price returns above the 20-day exponential moving average (EMA) at 99.28, suggesting emerging underlying demand after the recent recovery from the high-98 area.

Momentum: The Relative Strength Index (14) at 51.19 has shifted back to neutral-positive territory, hinting that downside momentum has faded and that buyers are gradually regaining control.

Support: On the downside, immediate support is seen at the 20-day EMA at 99.28, followed by Friday's low near 99.00. Below 99.00 the USD Index clould decline to near the September low at 98.60.

Resistance: Looking up, the index could extend its advance to near the August 13 high around 100.00.

(The technical analysis of this story was written with the help of an AI tool. Know more.)