United States Dollar Index maintains gains before US PCE inflation release

• With the Fed leaving rates at 3.75%–4.00%, as widely expected, the US Dollar Index retains its firmer tone.
• Despite steady employment and economic growth, the Fed halted rate increases to collect further evidence on persistent price pressures.
• Two officials dissented in favour of an immediate rate rise, while Chair Warsh reiterated the Fed’s 2% inflation target.

At around 102.30 during Thursday’s European trading hours, the US Dollar Index (DXY) is holding steady following modest losses a day earlier. The index tracks the US Dollar (USD) against a basket of six major currencies.

An unchanged interest-rate decision from the Federal Reserve (Fed), widely anticipated by markets, left the dollar trading sideways, with little guidance on the next policy step. Attention now turns to the forthcoming US Personal Consumption Expenditures (PCE) price index. Traders are looking to the Federal Reserve’s preferred inflation gauge for a clearer indication of the monetary policy outlook.

Rates were maintained at 3.75%–4.00%, with the Fed reporting continued expansion in economic activity. Resilient domestic spending, robust capital investment and strong productivity growth featured in the central bank’s official statement. On its labour market mandate, the Fed noted that employment gains have matched workforce growth, while unemployment has remained broadly unchanged.

Although price pressures remain elevated, the Fed opted against further rate rises while it collects more data and evaluates the appropriate policy stance. Two officials opposed the decision: Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack both voted for an immediate increase in rates.

With the underlying economy still strong, Fed Chair Kevin Warsh reiterated the Federal Open Market Committee’s commitment to price stability and its 2% inflation target. Turning to the central bank’s timetable, he said eight meetings are scheduled for next year, including one without a formal vote. He also indicated that he expects six policy-setting meetings in 2028.

Technical Analysis: Dollar Index Maintains a Bullish Bias

Trading at 102.30 on the daily chart, Dollar Index Spot retains a bullish near-term bias. Its position above both the nine- and 50-day Exponential Moving Averages (EMAs) points to a constructive underlying trend. Meanwhile, the 14-day Relative Strength Index (RSI), at 60.01, remains well above the neutral 50 mark, suggesting that upward momentum has survived the latest consolidation.

The nine-day EMA, around 102.06, provides the nearest support, followed by a lower technical floor at the 50-day EMA near 101.20. Resistance on the upside is indicated by the FXS Fed Sentiment Index at 141.89. Given the considerable distance to that level, the Dollar Index could edge higher in the near term, with the short-term EMAs providing dynamic support.

Fed leaves rates unchanged but FOMC keeps December hike in play

Leaving US monetary policy unchanged at its latest meeting, the Fed delivered a decision that Rabobank analysts describe as “slightly less hawkish” than expected. In their assessment, the fact that “just two FOMC members dissented to vote for a hike,” points to a modestly softer committee stance. Even so, Rabobank stresses that “FOMC Chair Warsh did prepare markets for another hike in December,” meaning further tightening remains firmly under consideration despite the pause.

(An AI tool assisted in preparing this article’s technical analysis. Find out more.)