The US Dollar Index traded around 98.30 in Friday’s European session, extending a two-day rebound but holding firmly below the 98.50 mark. The gauge of the greenback’s performance remains locked in a descending channel on the daily chart, signaling that the broader downtrend is still intact despite the recent bounce.
Technical picture: downtrend intact, momentum loss but no reversal
Short-term technical signals continue to lean bearish.
- The nine-day exponential moving average sits near 98.58 and the 50-day EMA around 98.87, both now acting as resistance rather than support. Recent recovery attempts have stalled below these levels, underscoring the difficulty in mounting a more durable rally.
- Momentum is soft but showing signs of stabilization. The 14-day relative strength index hovers near 40, suggesting selling pressure has eased, yet has not given way to a clear bullish turn.
On the downside, immediate support is located near the lower boundary of the descending channel around 97.50. A clear break below this level could open the way toward 95.56, the lowest reading since February 2022, last reached on January 27.
On the upside, a move above 98.58 would put the 50-day EMA at 98.87 in focus, followed by resistance near 99.10 at the upper channel line. Clearing these layers could mark a shift in the technical outlook, with scope for a push toward 100.64, last seen on March 31.
Dollar’s structural role and policy drivers
The US dollar remains the dominant currency in global markets, involved in more than 88% of foreign exchange transactions and posting an average daily turnover of $6.6 trillion in 2022. Since the collapse of the Bretton Woods system in 1971, it has traded freely without a direct link to gold.
Federal Reserve policy is the primary driver of the dollar’s medium-term trajectory. Rate hikes typically support the currency by lifting US yields and attracting capital flows, while rate cuts and balance sheet expansions tend to weigh on the dollar.
- Quantitative easing, including expanded bond purchases, generally adds liquidity and can pressure the dollar lower.
- Quantitative tightening, in which the Fed allows its balance sheet to shrink or reduces bond holdings, often has the opposite effect, tightening financial conditions and underpinning the dollar.
These mechanisms remain central in shaping the dollar’s performance against major counterparts.
Inflation split complicates the Fed outlook
The latest inflation data add nuance to the policy picture. The Consumer Price Index for March rose 0.9% on the month, lifting the annual headline rate to 3.3%. A sharp 21.2% increase in gasoline prices accounted for nearly three-quarters of the monthly gain, reflecting the impact of persistent geopolitical strains on energy markets.
Stripping out food and energy, the core CPI increased a more modest 0.2% in March, bringing the year-on-year core rate to 2.6%. The gap between the elevated headline rate and the more contained core reading poses a challenge for the Fed, which must weigh the broad shock from energy costs against signs that underlying price pressures may be cooling.
Fed stance: steady rates, cautious tone
Fed officials have so far maintained a steady policy hand. The target range for the federal funds rate remains at 3.5% to 3.75%, unchanged since the last adjustment.
New York Fed President John Williams recently signaled confidence in the US outlook, projecting real GDP growth of 2.0% to 2.5% this year. He described the current stance as appropriate for managing both persistent inflation risks and financial stability concerns amid global uncertainty.
The remarks suggest policymakers are in no hurry to shift course, preferring to see additional data before committing to either renewed tightening or an easing cycle. That wait-and-see approach is contributing to the dollar’s current indecisive trading pattern.
Market implications: range-bound dollar, directional triggers in focus
The dollar’s lack of a clear directional bias has direct implications for assets priced against it and for strategies sensitive to shifts between “risk-on” and “risk-off” conditions.
- A decisive drop below the 97.50 support area on the Dollar Index would signal renewed weakness. Historically, such phases have often coincided with a more supportive backdrop for risk-linked assets that tend to benefit when capital rotates away from traditional safe havens.
- Conversely, a sustained break above resistance near 98.87 and on toward 99.10 would hint at a stronger dollar and a more cautious tone in global markets. That environment has typically favored safety-oriented allocations and created headwinds for alternative assets that perform best in a risk-seeking climate.
For now, the Dollar Index sits between those technical markers, with traders closely watching both incoming macro data and any shift in Fed communication for the next decisive push in either direction.
For macro-driven traders watching the dollar and Fed policy, explore Toobit’s interest rates and Bitcoin guide next.
Disclaimer: The content on this page is provided for general informational purposes only and does not represent the views or financial advice of Toobit. We make no guarantees regarding the accuracy or completeness of this information and shall not be held liable for any errors, omissions, or outcomes resulting from its use. Investing in digital assets involves risk; users should independently evaluate their financial situation and the risks involved. For further details, please consult our Terms of Service and Risk Disclosure.
