DXY index has stalled: What next for the US dollar index?

on Mar 3, 2023
  • The US dollar index strong comeback has stalled.
  • Investors are waiting for more data scheduled for this month.
  • Fed’s Christopher Whaller has hinted to more rate hikes.

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The DXY index rally has stalled as investors wait for fresh economic numbers to be released this month. The closely-watched US dollar index remained stuck at $105 on Friday morning where it has been in the past few days. This price is about 3.97% above the lowest point this year.

Fed officials point to more hikes

The DXY index has been in a bullish trend after a series of strong economic numbers from the United States. In February, data by the Bureau of Labor Statistics (BLS) showed that the country’s unemployment rate dropped to 3.4% in January. 

Additional data showed that inflation remained red-hot. The headline consumer price index (CPI) dropped slightly to 6.4% in January from the previous 6.5%. In the same period, the Fed’s favorite PCE index remained above 5%.

Retail sales were also strong in the US. This signals that the American economy was doing modestly well. A key factor is that Americans accumulated substantial savings during the pandemic. With interest rates rising, it means that savers are making some good money. 

The US dollar index recovery has stalled as investors wait for the upcoming numbers. Next week, the US will publish the latest non-farm payrolls (NFP) data that will provide the health of the job market. In the following week, the government will publish the latest inflation data.

Fed officials have supported more tightening in the next few months. Well-known hawks like Loretta Mester and James Bullard have supported a 0.50% rate hike in March. But they are not voting members of the FOMC. In a statement on Thursday, Christopher Waller said:

“I would be very pleased if the data we receive on inflation and the labor market this month show signs of moderation. But wishful thinking is not a substitute for hard evidence in the form of economic data. After seeing promising signs of progress, we cannot risk a revival of inflation.”

US dollar index forecast

US dollar index

DXY chart by TradingView

The daily chart shows that the DXY index has been in a slow bullish trend in the past few days, as I wrote here. It has now stalled at the resistance point at $105. A closer look shows that the 25-day and 50-day moving averages are making a bullish crossover pattern. The Relative Strength Index (RSI) has moved above the neutral point.

Therefore, this price action seems like a temporary pause, meaning that the US dollar index will have a bullish breakout. If this happens, the next level to watch will be at $107.92.