The US Dollar witnessed a resurgence on Wednesday, rebounding from a lackluster performance earlier in the week, supported by the hawkish remarks of the Federal Reserve chairman at a forum in Sintra, Portugal. During afternoon trading, the DXY index, which measures the US Dollar’s strength against a basket of currencies, rose approximately 0.5% to reach 103.00, on track for its highest closing since June 13.
Speaking at a central banking panel hosted by the ECB, FOMC chief Powell indicated that the current policy stance might not be restrictive enough and that further tightening is anticipated. Powell mentioned that a significant majority of Fed officials endorse two additional interest rate hikes this year.
Powell’s cautionary statements did not end there. He also acknowledged that he does not expect core inflation to reach 2.0% until 2025. Although he didn’t explicitly state it, his rhetoric suggests that interest rates could remain elevated for an extended period as part of the ongoing efforts to restore price stability. This implies the possibility of no rate cuts in 2024.
Despite Powell’s hawkish tone, many traders remain skeptical about the feasibility of further rate hikes, arguing that the US economy might struggle to withstand a tighter monetary policy. To gain more clarity on the future outlook, it is crucial to closely monitor key macroeconomic reports in the upcoming days and weeks, such as jobless claims, PCE deflator, non-farm payrolls, CPI, and others.
Should incoming data continue to surpass expectations, doubts about the Federal Reserve’s outlined path may diminish, leading to a shift in interest rate expectations towards a more hawkish stance, aligning with the central bank’s guidance. This potential development could strengthen the US Dollar as we move into the third quarter.
US DOLLAR TECHNICAL ANALYSIS
Following its recent rebound, the US Dollar (DXY) is steadily approaching the medium-term trendline resistance at 103.50. While encountering difficulty in surpassing this technical barrier, a breakout could attract fresh buyers and pave the way for a move towards 104.70, near the swing highs observed in May.
Conversely, if sellers regain control and trigger a pullback, initial support levels lie between 102.20 and 101.81, followed by 100.80, which aligns with the lows witnessed in 2023. Further weakness could result in a decline towards 99.50.
