US Dollar Index (DXY) News: Fed Signals Progress on Inflation, Greenback Reacts

Fed Holds Rates Steady, Dollar Shows Mixed Reaction

The Federal Reserve maintained its benchmark interest rate at 5.25%-5.5% on Wednesday, triggering a mixed response in the U.S. Dollar Index. While the greenback remained lower for the daily session, it showed signs of strength on the 15-minute chart immediately following the Fed’s statement release.

At 18:09 GMT, the U.S. Dollar Index (DXY) is trading 104.320, down 0.131 or -0.13%.

Key Policy Developments

The Federal Open Market Committee (FOMC) kept rates unchanged, as widely expected. However, the statement included notable language shifts, suggesting progress towards the Fed’s 2% inflation target. The committee noted that inflation “remains somewhat elevated” but acknowledged “some further progress” in recent months.

Economic Outlook

Despite maintaining tight monetary policy, the U.S. economy continues to expand. Second-quarter GDP growth surprised to the upside at 2.8% annualized, driven by consumer spending, government expenditure, and inventory restocking. The labor market remains resilient, with unemployment at 4.1%, though recent data hints at potential softening.

Inflation Trends

The Fed’s preferred inflation measure now hovers around 2.5% annually. Recent wage data showed positive signs, with the ADP report indicating the slowest pace of wage increases in three years. Additionally, the Labor Department reported lower-than-expected growth in wages, benefits, and salaries for Q2.

Housing Market Resilience

Contrary to expectations, the housing market displayed unexpected strength. Pending home sales surged 4.8% in June, significantly outpacing the projected 1% increase and defying concerns about the impact of high interest rates.

Market Forecast

While the Fed’s statement was perceived as slightly dovish, the central bank maintained its commitment to data dependency. The dollar’s initial upward move suggests traders are reassessing rate cut expectations. Short-term volatility is likely as markets digest the full implications of the Fed’s stance. A cautiously bullish outlook for the dollar seems warranted, pending Fed Chair Powell’s press conference and upcoming economic data releases.

Technical Analysis

After an earlier plunge to 103.926, the DXY is straddling the 200-day moving average at 104.315, suggesting buyers could be presence as they digest the impact of the Fed’s statement.

With the statement widely telegraphed, traders expect Powell’s press conference comments to be market moving events and reaction to the 200-day MA will set the tone.

A sustained move over 104.315 will indicate the presence of buyers. This could create the upside momentum needed to challenge the resistance cluster at 104.869 to 104.890.

On the downside, the inability to overtake 104.315 will signal the presence of sellers. This could lead to a retest of the intraday low at 103.926, followed by the main bottom at 103.650.