Key Points:
- USDX rose to 97.3 after Fed Chair Powell downplayed near-term rate cuts.
- Fed Governor Miran warned of tightening risks if bold policy shifts are delayed.
- Traders await the PCE index for fresh inflation signals.
The US Dollar Index (USDX) edged up to 97.3 on Wednesday, snapping a two-day losing streak as Federal Reserve Chair Jerome Powell struck a notably cautious tone on future monetary easing. After testing lows near 95.8 earlier in the week, the dollar found fresh footing on the back of central bank messaging that tempered dovish expectations.
Powell reiterated that the path of rate cuts remains uncertain, given the ongoing tension between sticky inflation and softening labour market indicators. While he acknowledged that price pressures related to tariffs have remained subdued, he stopped short of committing to any aggressive easing path, keeping markets in a holding pattern.
His stance was both echoed and challenged by newly appointed Fed Governor Stephen Miran, who advocated for a 50bps rate cut at last week’s meeting.
Miran cautioned that without bolder monetary action, the Fed may risk underestimating the degree of tightening already present in the economy, potentially leading to job losses.
With rate expectations finely balanced, trader focus now shifts to the upcoming PCE price index, the Fed’s preferred measure of inflation. A hotter-than-expected read could reinforce the Fed’s hesitancy to cut, while a cooler figure may revive dovish bets.
Technical Analysis
The US Dollar Index (USDX) is trading at 96.94, up 0.14% on the day, exhibiting a mild rebound after its recent decline. The broader trend remains bearish, with the index down from highs of 107.53 in March to test the 95.97 support zone earlier this month.
The moving averages (5, 10, 30) remain aligned to the downside, reflecting sustained selling pressure. The MACD histogram is close to the zero line but still weak, suggesting momentum is muted and buyers are not yet fully committed.
Unless the index can reclaim the 98.50 region, the bias stays tilted to the downside.
Support lies first at 95.97, with further downside risk toward the 95.00 handle if sellers regain control. On the upside, resistance is seen at 98.50, followed by a stronger ceiling around 100.00.
Overall, the dollar index is struggling to build recovery momentum. For now, it appears locked in a weak consolidation, with downside risks outweighing bullish potential unless a clear breakout above resistance occurs.
Cautious Forecast
The dollar’s short-term trajectory hinges on macroeconomic data and evolving Fed communication. For now, Powell’s reluctance to commit to aggressive easing may limit downside pressure, especially if upcoming PCE data support the Fed’s patient stance.
However, without a strong inflation beat or employment rebound, the dollar may struggle to regain bullish momentum.
The medium-term outlook remains cautious, with likely range-bound trading between 95.8 and 98.0, unless a surprise macro trigger breaks the gridlock.
