DXY index: Here’s why the US dollar could rise to $107

The DXY index has been in a bullish momentum in the past few weeks. US dollar index has jumped to a 20-year high of $105.6 as investors wait for the upcoming interest rate decision by the Federal Reserve. It has jumped by over 17% from its lowest level in 2021.

US Treasuries continue

The DXY index has been in a strong upward trend as investors predict the biggest Fed rate hike in decades. 

As the Fed completes its two-day monetary policy meeting, many investors now believe that the bank will raise rates by 0.75%.

This rate hike will mostly be because of the most recent economic data. Early this month, data by the Bureau of Labor Statistics (BLS) showed that the unemployment rate remained at 3.6% as the economy added over 390k jobs.

These numbers were followed by additional ones that revealed that the headline consumer inflation data jumped to the highest level in 40 years. Precisely, inflation jumped to 8.6%, which was higher than the previous month.

Other numbers show that the country’s economy could be heading towards a recession. For example, data published last month revealed that new and pending home sales have been in a steep decline. 

Further data showed that consumer confidence has plummeted to a multi-decade low as gasoline prices continued soaring. The average gas price in the US has jumped above $5 in the past few days.

The US dollar index has also been rising as other world economies continued struggling. For example, the UK economy is moving towards stagflation. Meanwhile, inflation in the European Union has jumped to a record high even as the European Central Bank moves towards rate hikes.

Similarly, the Japanese yen, which is a major part of the DXY index, has crashed to a record low.

US dollar index forecast

The weekly chart shows that the DXY index has been in a strong bullish trend in the past few months. It has managed to move above the key resistance at $103.04 and $103.80, which were the highest points in March 2020 and January 2017.

The dollar index has moved above the 25-week and 50-week moving averages. It has also invalidated the double-top pattern that was forming. Therefore, the index will likely keep rising as bulls target the next key resistance at $107.