- The US Dollar Index afloat above the 100.00 marker while enjoying some support.
- Traders mull the wait-and-see stance from several Fed members.
- The US Dollar Index stable for now, though a revisiting of 2022 lows could become possible.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is trading flat on Tuesday as markets continue to digest the recent downgrade of the rating in US debt, which led to a rollercoaster in US bond markets. Outside the US, geopolitical tensions are picking up again. France, the United Kingdom and Canada are considering sanctions on Israel if the country does not call off its ground offensive in Gaza and allows food supplies to enter the Strip. Israel’s Prime Minister Benjamin Netanyahu pushed back by saying that Israel has the right to defend itself.
Regarding the Russia-Ukraine war, EU leaders condemned the retreat of United States (US) President Donald Trump after his two-hour call with Russian President Vladimir Putin. Despite the bold claims that a deal would be brokered within days after becoming President and that a peace deal would not be possible without the US, President Trump said that the US would back out of any further talks by saying “it’s not our war to deal with”, Bloomberg reported. The unraveling adds to further losing credibility, hitting the value of the US Dollar.
In a relatively calm week in terms of economic data, traders brace for more comments from Federal Reserve (Fed) officials on Tuesday after Monday’s mostly hawkish tone seen among many of them.
Daily digest market movers: Next slew of Fed speakers
- Markets are downgrading the US Dollar even further as US President Trump is apparently unfit to solve the Ukraine-Russia debacle. After the two-hour call with Russian President Putin, President Trump said talks between the EU, Russia and Ukraine would start, without any military or sanction-related support in order to speed up the peace process, Bloomberg reports.
- An army of Fed speakers stands ready on an otherwise dry Tuesday in terms of US economic data:
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- At 13:00 GMT, Federal Reserve Bank of Richmond President Thomas Barkin speaks on growth in rural communities at the Investing in Rural America Conference in Roanoke, Virginia.
- At 17:00 GMT, St. Louis Fed President Alberto Musalem speaks at the Economic Club of Minnesota Event at the University of Minnesota Campus.
- Near 21:00 GMT, Federal Reserve Bank Governor Adriana Kugler delivers a commencement address at the Spring 2025 Berkeley Economics Commencement Ceremony..
- At 23:00 GMT, Federal Reserve Bank of Atlanta Raphael Bostic speaks on a panel with other Reserve Bank presidents at the Atlanta Fed’s 2025 Financial Markets Conference in Florida.
- At that same time, Federal Reserve Bank of San Francisco President Mary C. Daly and Federal Reserve Bank of Cleveland President Beth M. Hammack both participate in a moderated Q&A.
- Equities are mixed on Tuesday, with European equities edging up after the German DAX eked out another all-time high. US equity futures are facing some downside on Tuesday.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in June’s meeting at just 8.6%. Further ahead, the July 30 decision sees odds for rates being lower than current levels at 33.1%.
- The US 10-year yields trade around 4.51%, surging back while US bond prices are dropping.
US Dollar Index Technical Analysis: Small bounce infused
The US Dollar Index is losing some more of its shine on Tuesday. After the creditworthiness and its safe-haven status issue due to the credit rating downgrade, the fact that President Trump might walk away from any further attempts to end the war between Russia and Ukraine can be perceived as another element of untrustworthiness. The fact that the Trump administration might switch or even U-turn on any matter will stick with trader sentiment when considering how to deal with the US Dollar.
On the upside, 101.90 is the first big resistance again as it already acted as a pivotal level throughout December 2023 and as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024. The 55-day Simple Moving Average (SMA) at 101.94 reinforces this area as strong resistance. In case Dollar bulls push the DXY even higher, the 103.18 pivotal level comes into play.
As for supports, the ascending trend line and support level at 100.22 is under pressure and could snap at any moment if more selling pressure emerges. A nosedive move could materialize towards the year-to-date low of 97.91 and the pivotal level of 97.73. Further below, a relatively thin technical support comes in at 96.94 before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.
US Dollar Index: Daily Chart
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
