The US Dollar Index (DXY) maintained its upward trend on Monday, achieving a four-day recovery due in part to a strong S&P Services PMI and cautious remarks from Atlanta Federal Reserve President Raphael Bostic. The S&P Global Composite PMI rose, reflecting improved economic momentum driven by a robust service sector, while the Manufacturing PMI fell below the 50 mark, indicating contraction.
The DXY’s daily chart shows an increasing Fed sentiment index, adding strength to the USD. Bostic also reduced his rate cut expectations for 2025, citing persistent inflation and trade-related risks as concerns.
Technical Analysis And Market Outlook
Technically, the DXY has seen a winning streak but has stalled below 104.00. The Relative Strength Index (RSI) is rising gradually, suggesting some bullish outlook, while the Moving Average Convergence Divergence (MACD) indicates decreasing bearish momentum.
Resistance levels are noted at 104.20, 104.80, and 105.20, while support is found at 103.40 and 102.90. Additionally, a bearish crossover of the 20-day and 100-day Simple Moving Averages near 105.00 may potentially signal a sell.
Interest rates, influenced by central bank policies, can impact currency strength, as higher rates attract investments. They also affect gold prices, as increased rates raise the opportunity cost of holding gold over interest-bearing assets.
The Fed funds rate, the rate at which banks lend to each other overnight, shapes market behaviours and expectations around monetary policy. It is typically reported as a range, impacting financial decisions and economic activities.
This recent stretch of gains for the greenback seems to stem from renewed confidence in the US economy, particularly its service sector. The latest S&P Global Composite PMI figures suggest that businesses providing services are seeing more activity, even as manufacturing shows signs of contraction. A divided economy like this may create mixed signals for traders, but markets have largely focused on services to gauge overall performance.
Bostic’s comments added weight to the idea that interest rates could stay elevated longer than previously thought. By pushing his expectations for rate cuts further into 2025, he has contributed to a sense that borrowing costs will remain restrictive to combat inflation. When key figures at the Federal Reserve push this narrative, markets often respond with adjustments in both foreign exchange markets and bond yields.
From a technical perspective, the DXY has been on a winning streak, though it has struggled to convincingly break above the 104.00 level. The RSI continues creeping upwards, hinting that momentum may still favour buyers, albeit at a measured pace. Meanwhile, a weakening MACD’s bearish momentum could indicate a slowing of previous downward pressures. All of this suggests caution for those expecting a sudden reversal, as the index still holds its footing above key support levels.
Key Support And Resistance Levels
Traders should closely observe resistance points at 104.20, 104.80, and 105.20. If the index fails to clear these, we could see some renewed selling pressure. At the same time, immediate support looks to be standing at 103.40 and 102.90, marking levels where a deeper pullback might stabilise. That said, the potential bearish crossover between the 20-day and 100-day Simple Moving Averages could serve as an early warning for downside risks if it fully materialises.
Beyond price action, US interest rates continue to be the primary force shaping dollar strength. With high yields offering more attractive returns for investors, we often see increased capital flows into the currency. This, in turn, has repercussions for gold. When interest rates rise, the non-yielding metal tends to see outflows as investors favour assets that generate returns.
The Fed funds rate, an essential benchmark, ultimately dictates short-term borrowing conditions across the financial system. When this rate shifts—or even when markets adjust expectations about its future direction—bonds, equities, and currencies tend to move in response. Given the cautious stance from policymakers, there is little room for assumptions about an imminent change in monetary policy.
