On Monday, June 16th, the US Dollar Index (DXY) dropped to 97.685, rebounding slightly from the multi-year low of 97.621 set last week but still hovering near that level. Traders are assessing whether the index has bottomed out or is preparing for a new round of decline. Market sentiment remains bearish, with short covering potentially limiting any rebound, while new short positions are expected to emerge near resistance levels.
Will Fed Policy Revitalize Demand for the US Dollar?
Market attention is focused on the Federal Reserve’s policy statement to be released on Wednesday. Traders expect the Fed to keep interest rates unchanged but will closely monitor any changes in its tone on inflation and economic growth. The Fed’s forward guidance is expected to dominate the short-term price trend, especially if officials suggest that policy normalization will continue despite tariff-related resistance. According to David Song of Forex.com, the Federal Open Market Committee (FOMC) is likely to maintain a restrictive stance because the current tariff system has had a limited impact on inflation.
Geopolitical Tensions Fail to Trigger Safe-Haven Buying
Despite the escalation of the conflict between Israel and Iran, the US dollar has not demonstrated its traditional safe-haven strength. Instead, traders are shifting their focus from geopolitical risks to central bank policies. John Velis, a strategist at BNY Mellon Markets, noted that although the oil market was concerned about potential supply disruptions in the Strait of Hormuz, neither the US dollar nor US Treasuries saw significant safe-haven buying. Crude oil prices dropped by 3.3% on Monday, giving back some of the gains made last Friday.
Other Central Banks in Focus
The intensive global central bank meetings this week have also influenced the US dollar’s trend. The Bank of Japan is expected to maintain its policy unchanged, but market speculation about scaling back its bond purchase program in the next fiscal year is heating up.
The Bank of England, the Swiss National Bank, the Swedish central bank, and the Norwegian central bank will all announce their interest rate decisions, adding more variables to the fluctuations in the foreign exchange market. Risk-related currencies have risen sharply, increasing by 0.9% and 1.2% respectively. The Norwegian krone, which is sensitive to oil prices, has reached its highest point since the beginning of 2023.
Outlook for the US Dollar Index: Persistent Downside Risks
From a technical perspective, the US Dollar Index (DXY) is facing strong resistance near its 50-day moving average (around 99.80). Unless there is a decisive shift in the Fed’s tone, any rebound is expected to stall below this level. If the index confirms a break below 97.621, it may signal further weakening, with the support level of 95.137 coming into focus. In the absence of sustained risk-averse sentiment or a hawkish shift by the Fed, the US dollar may face sustained downward pressure in the short term.
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