The US dollar sees gains again on a peaceful Wednesday

Greenback extends its rebound to around 106.70.
The Fed’s hawkish stance and risk-reducing sentiment support demand for the dollar.
Fed representatives emphasize caution in cutting interest rates due to economic data and the risk of inflation.

The U.S. Dollar Index (DXY), which measures the value of the U.S. dollar against a basket of currencies, posted solid gains to 106.70. Factors such as recent forceful economic data, rising yields and a less dovish stance from the Federal Reserve (Fed) are driving DXY’s upward trajectory.

Factors driving its strength include geopolitical tensions, the Fed’s cautious rhetoric on interest rates and solid U.S. economic data. The upward trend remains unchanged, supported by the resilience of the economy and restricted expectations for aggressive easing of monetary policy by the Fed. Therefore, once the index reaches yearly highs around 107.00, a pullback or period of consolidation is possible.

Daily market recap: US dollar gains as markets adjust bets on Fed rate cuts

DXY’s rally is driven by favorable data, rising yields and cooling dovish Fed sentiment.
Last week, Powell downplayed the need for aggressive monetary easing while emphasizing the strength of the economy. He suggested slowing down the pace of interest rate cuts to boost the chances of achieving the right balance
Other Fed officials share Powell’s cautious approach, emphasizing the need to take into account both inflation and employment.
According to the CME FedWatch Tool, market odds of a December rate cut have dropped to 58%, indicating a shift in expectations.
For the rest of the week, markets will look at weekly jobless claims data as well as Friday’s S&P PMI data.

DXY Technical Outlook: Bulls return to momentum near overbought area

The US Dollar Index continued its upward rally on Wednesday, supported by positive technical indicators. The relative strength index (RSI) is approaching overbought territory, indicating potential consolidation. However, the moving average convergence divergence (MACD) remains bullish, suggesting that the uptrend may extend.

The index faces resistance at 107.00, with a key support zone between 106.00 and 105.00.