US Dollar Index (DXY) Awaits NFP Inflation Data

The US Dollar Index (DXY) continued to rebound this week as attention shifted to the upcoming US GDP and inflation report. It hit $106.11 on Thursday, its highest level since May 1. It jumped more than 1.85% from its lowest level this month.

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US PCE data coming soon

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The US dollar index continued to rise as it appeared the Fed would be one of the last major central banks to start cutting interest rates.

The European Central Bank (ECB) cut rates by 0.25% at its recent June meeting. Similarly, the Bank of Canada (BoC) and the Swiss National Bank (SNB) reduced their interest rates by 0.25% as inflation fell in their countries.

In the UK, the Bank of England (BoE) left interest rates unchanged but indicated it would soon start cutting them as inflation reached its 2% target. Analysts expect him to cut rates at his August meeting.

The Fed, on the other hand, left interest rates unchanged at its last meeting and spoke of only one cut this year. A few months ago, the Fed announced that it would make three rate cuts this year as inflation recedes.

I believe the Fed will make its first rate cut at its December meeting, as an earlier cut would draw criticism that it is biased against Donald Trump.

Looking ahead, the next important data that will move the US Dollar Index will be released on Thursday when the US releases the final estimate for the first quarter. Data is expected to show the economy slowed to 1.6% after growing 3.4% in the previous quarter.

The GDP data will likely have minimal impact on the DXY as it is the third estimate. Instead, traders will focus on Friday’s PCE inflation data, which looks at price changes in urban and rural areas.

Economists expect the report to show that both headline and core inflation remained above 2.5% in May. As a result, the Fed will have every justification to keep interest rates higher for longer.

Some analysts, including Mohamed El Erian, have nonetheless argued for a Fed rate cut, citing high-frequency data showing the economy is slowing. Indeed, recent data showed that consumer confidence, as well as manufacturing and industrial production, fell in May.

US Dollar Index Forecast

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TradingView DXY Chart

The daily chart shows that the DXY Index has been in a slow uptrend after forming a double bottom pattern at $104.03. It recently jumped above the crucial resistance point at $105.15, the pattern neckline.

The pair crossed the 50-day moving average while the Relative Strength Index (RSI) rose above the neutral level of 50. Therefore, the short-term outlook is that the index will continue to rise as buyers aim last month’s high of $106.55.