US Dollar shows modest gains ahead of Fed decision

On Wednesday, the US dollar’s gains continued. The revised Dot Plot and Chair Powell’s tone are the centre of attention. Any surprise from the Fed, whether hawkish or dovish, could cause volatility in the USD.

At present, the US Dollar Index (DXY) is trading close to 104, indicating a gain not seen since March 1. For the fifth day in a row, the US dollar has been advancing gradually, supported in recent sessions by rising US Treasury yields and positive economic statistics. However, the Federal Reserve’s (Fed) position and forecasts will determine the short-term course.

The US economy is strong, showing conflicting signs in the labour market and minimal indication of inflation. Investors will evaluate Jerome Powell’s position on interest rate reductions. The market is pricing in three rate reductions in 2024, beginning in June, in line with the Fed’s most recent estimate. There will be a focus on the inflation trend and the Summary of Economic Projections.

The Dot Plot indicates a potential dollar reaction. DXY’s bullish momentum is under control, with the Relative Strength Index and Moving Average Convergence Divergence indicating strong buying. Simple Moving Averages maintain a positive position above critical levels, indicating sustained upward momentum.