Moody’s downgraded the US credit rating to ‘AA1’ from ‘AAA’, pointing to a worsening fiscal outlook under President Donald Trump. The US Dollar Index (DXY) remains around 100.30, as markets digest the downgrade, with summer rate cuts now appearing less likely.

President Trump announced renewed Russia-Ukraine ceasefire talks, though markets remain unaffected. Federal Reserve officials maintain a cautious approach, with diminished momentum for the US Dollar despite ongoing global uncertainty.

Market Expectations And Probabilities

Market sentiment shows an 91.6% probability of rates holding at 4.25%–4.50% in June, and a 65.1% chance of no change in July. By September, there is a 49.6% possibility of a rate cut to 4.00%–4.25%, with further reductions expected into 2025.

Technical analysis of the US Dollar Index indicates neutral momentum, with trading near the 100.30 mark. Key resistance levels are 100.30, 100.57, while support stands at 100.10 and 99.94. Longer-term signals reflect bearish sentiment, suggesting potential declines if market sentiment worsens further.

The US Dollar, the world’s most traded currency, is inextricably linked to the Federal Reserve’s monetary policies. Changes to interest rates and practices like quantitative easing directly influence its value.

So far, what’s been outlined paints a picture of cautious balance. The downgrade by Moody’s to ‘AA1’ — while not a massive shock — still matters from a psychological viewpoint. It reflects deepening worries about government debt levels and budget deficits growing unchecked. For those of us watching these instruments closely, it’s not something to brush aside, even if immediate volatility was muted.

Dollar Index Technical Analysis

Now, with the Dollar Index stuck above 100 and not making strong moves in either direction, there’s hesitation. That’s both in technical price action and in outlook. Official statements suggest the Federal Reserve isn’t turning dovish as quickly as some had hoped heading into summer. Considering the downgrade and muted global traction, it appears decision-makers are still leaning towards holding current levels steady for now.

Look at June: markets assign a more than 90% likelihood that rates will stay at 4.25% to 4.50%. That’s not a split opinion — that’s near-consensus. For July, it shifts slightly but not convincingly; the majority view remains entrenched. What that tells us is that expectations for rate cuts are being pushed further out, most likely past September unless we see real deterioration in certain macroeconomic data.

By September, we do see a near 50/50 split. It becomes a turning point of sorts. A cut to 4.00%–4.25% may occur, but conditions need to align — softer inflation, weaker employment figures, perhaps weaker business spending. If those don’t materialise, inaction could continue deeper into Q4.

From a technical side, the Dollar Index hovering near 100.30 shows a stall. It’s not rallying, but there’s also little appetite to sell aggressively — at least while policy remains in this holding pattern. Resistance up near 100.57 isn’t too far, so efforts to breach that level could trigger fast stops and prompt a bit of upside, though that would likely be short-lived unless backed by surprise hawkish commentary or data beats. We’re now between narrow price zones — 100.57 on the top, with supports below at 100.10 and further down at 99.94. If these lower levels break, it could open room for a slower bleed back toward the mid-90s over the coming quarters.

Longer-term sentiment leans lower. That doesn’t mean an immediate plunge, but it does imply that strength we’ve seen in the dollar recently may not be sustainable unless global worries push safe haven demand higher again. That hasn’t happened yet, despite fresh ceasefire attempts and geopolitics still simmering in the background.

For anyone trading rate-sensitive instruments, short-term interest rate futures and FX options will likely see reduced implied volatility until more definitive data shifts arrive. That said, forward positioning should reflect the tightening bias in volatility, paired with the gradually filling expectation of late-year easing. There’s a tightrope between patience and preparedness. While we wait, the moves may be modest — but they won’t always stay that way.

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