US dollar index (DXY) forecast ahead of Fed, SNB, BoE, BoJ decisions

By:
on Mar 16, 2024
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  • The US dollar index has rebounded in the past few days.
  • The Federal Reserve will deliver its second decision of the year on Wednesday.
  • Other central banks like the BoJ, BoE, and SNB will also make their decisions next week.

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The US dollar index (DXY) price rose for two straight days as focus now shifts to the upcoming Federal Reserve decision. The index, which tracks the greenback against a basket of currencies, rose to $103.50, higher than this month’s low of $102.35.

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Federal Reserve decision ahead

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The US dollar index has been in the spotlight recently after the country published several important economic numbers. 

A report by the Bureau of Labor Statistics showed that the US labor market was still strong in February. The unemployment rate rose from 3.7% in January to 3.9% in February as the economy created over 250k jobs.

A separate report this week showed that the country’s inflation remained red-hot in February. The headline Consumer Price Index (CPI) rose to 3.1% while the core CPI jumped to 3.8% in the same month.

US inflation has become a big thorn in the flesh for the Federal Reserve. While inflation growth is moderating, prices remains about 18% above where they were in 2020. 

The price of key products in the US like insurance and rent is still growing at a fast pace, meaning that inflation will remain higher for longer. 

The focus among investors now is the upcoming central bank decisions in the US, Japan, Switzerland, and the UK. These are important banks because their currencies are an important part of the US dollar index.

Economists polled by Reuters expect that the Fed, SNB, and BoE will all leave interest rates unchanged. There’s an elevated risk that the Bank of Japan will deliver its first interest rate hike in more than a decade this week.

The Fed is expected to leave rates intact and possibly insist that they would remain at an elevated level for a while. Some investors have reduced their Fed cut bets to 2 from the previous 3.

In the UK, the Bank of England is expected to maintain rates unchanged for longer since inflation is still higher than in other countries. The UK economy is doing slightly better than was previously expected.

US dollar index forecast

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US dollar index

DXY chart by TradingView

The DXY index formed a long-legged doji candlestick pattern on March 8th, triggering a bullish reversal. The lower side of this doji pattern was at $102.35, its lowest point since January 15th.

It has remained below the 50-day and 25-day Exponential Moving Averages (EMA) and is at the 50% retracement point. The index has also moved slightly above the lower side of the Andrew’s Pitchfork tool.

Therefore, the outlook for the US dollar index is moderately bullish, with the next target to watch being at $104. The alternate scenario is where it retreats and retests the psychological point at $103.

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