US dollar consolidates gains ahead of FOMC decision

The US Dollar Index is currently trading higher at 105.95, with markets expecting a hawkish hold by the Federal Reserve (Fed) on Tuesday. The US economy is experiencing resilience and persistent inflation, making a case for a hawkish hold by the FOMC.

Mid-tier data supports the dollar, with the Conference Board’s Consumer Confidence Index dropping to the lowest level since July 2022 at 97.0. The Employment Cost Index rose by 1.2% YoY in the first quarter. Market expectations show a 10% chance of a rate cut in June by the Fed, with odds decreasing to 33% for July and remaining below 75% for September.

On Wednesday, there are growing expectations for a hawkish surprise due to key Fed officials advocating for patience before initiating easing measures.

The technical outlook of the DXY indicates predominantly bullish momentum, with the Relative Strength Index (RSI) showing a positive slope in positive territory. The flat green bars viewed in the Moving Average Convergence Divergence (MACD) align closely with this bullish sentiment but warn of flattening momentum. The index remains above its 20, 100, and 200-day Simple Moving Averages (SMAs), pointing consistently toward a dominating bullish backdrop.