US dollar index (DXY): Fed interest rate decision preview

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Mar 16, 2021
  • The Fed will start its interest rate meeting today.
  • Economists expect that it will leave interest rates and QE unchanged.
  • The decision comes at a time when the US economy has made some improvements.

The US dollar index (DXY) is little changed as market participants look forward to the upcoming Fed interest rate decision. It is trading at $91.75, which is a few points below the intraday high of $91.97. 

Dollar index
US dollar index chart

Fed decision waited

The Federal Open Market Committee (FOMC) will start its two-day interest rate meeting today and deliver its verdict tomorrow. This meeting comes at a time when the US economy has made some modest recovery. 

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Consumer inflation has risen to 1.7% while the economy added more jobs in February. Further, the Treasury Department has already started to distribute the $1,400 stimulus checks. More states have started to reopen.

Therefore, economists believe that the Fed will leave interest rate and quantitative easing policies unchanged. They also see it boosting the overall economic outlook from 4.2% growth to 8.0% growth. On inflation, the bank will predict a sharp jump of prices as the economy reopens and as people put the stimulus funds into work. Also, the rising price of crude oil has contributed to the prices.

Most importantly, traders will be paying a close attention to the dot plot. This is a document that shows where the FOMC officials expect rates to move to in the future. As such, it will offer more clues on whether the officials predict higher rates earlier than expected. Most importantly, analysts will want to hear the Fed’s comments about the yield curve.

Before the interest rate decision, the dollar index will react to the latest US retail sales numbers. Economists expect these numbers to show that overall sales declined in February as the impacts of the previous stimulus started to fade. The index will also react to the latest US manufacturing and industrial production numbers,

The US dollar has gained by 0.40% against sterling and 0.10% against the Japanese yen. It has also declined by 0.12% against the euro and by 0.30% against the Swedish krona.

US dollar index forecast

DXY
DXY chart

On the three-hour chart, we see that the dollar index is in a tight range today. It is trading at the 23.6% Fibonacci retracement and is also along the 15-day and 25-day exponential moving averages (EMA). The price also seems to be forming an ascending triangle, which is usually a bullish sign. Therefore, the index may break-out higher as bulls target the next key resistance at $92.0

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