DXY index analysis: US dollar waits for Fed decision, NFP data

on May 1, 2023
  • The US dollar index has drifted upwards in the past few days.
  • The Federal Reserve will deliver its interest rate decision this week.
  • The US will publish its non-farm payrolls (NFP) data on Friday.

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The US dollar index (DXY) price moved sideways on Monday morning as investors position for the upcoming economic data and Federal Reserve interest rate decision. The DXY index was trading at $101.87, which was slightly above last month’s low of $100.77.

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Fed decision, NFP data

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The DXY index will be in the spotlight this week ahead of key events this week. The biggest catalyst for the US dollar will be the interest rate decision by the Federal Reserve. This will be an important decision because of the state of the economy.

Data published last week showed that the country’s economic growth slowed in the first quarter. Other numbers have shown that retail sales have dropped as inflation remains stubbornly high. The unemployment rate has remained close to a multi-decade low.

At the same time, there are concerns about the banking sector. For example, First Republic Bank is on the verge of collapse while the problems in the commercial real estate sector are becoming clear. 

Therefore, there is a likelihood that the Federal Reserve will take a balanced tone in the coming meeting. Expectations are that the Fed will hike interest rates by 0.25% and then take a strategic pause. The alternative is where the bank decides to leave interest rates unchanged.

The US dollar index will also react to the upcoming US non-farm payrolls (NFP) data scheduled for Friday. Economists expect the data to show that the economy added over 185k in March while the unemployment rate remained at 3.5%. 

There will be other important USD news this week. For example, the DXY index will react to the upcoming interest rate decision by the European Central Bank (ECB). The bank will hike rates by 0.25%. This is notable since the euro is the biggest US dollar index constituent.

US dollar index forecast

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dxy index

DXY chart by TradingView

The 4H chart shows that the DXY index bottomed at $100.83 in April. It has now moved slightly above the descending trendline shown in green. The index has moved above the 25-day and 50-day moving averages. It has also formed an inverted head and shoulders pattern. 

Therefore, there is a likelihood that the US dollar index sell-off is ending. If this happens, the next key level to watch will be at $102.78, the highest point on April 10.


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