The US Dollar Index (DXY) is showing renewed strength, climbing toward the 98.50 level during Thursday’s Asian trading session, as investors turn their attention to the upcoming US Retail Sales data for June. The DXY, which measures the value of the US Dollar (USD) against a basket of six major currencies, including the Euro (EUR), Japanese Yen (JPY), and British Pound (GBP), is reversing some of its losses from earlier in the week.
The renewed upside momentum in the Greenback is underpinned by evolving macroeconomic expectations and intensifying trade policy developments. The experts at Fletrade analyze this subject in detail, providing valuable insights in their write-up.
Dollar Momentum Builds Ahead of Key Economic Releases
The US Retail Sales figures, due later today, are expected to offer fresh insight into the strength of consumer spending, a core driver of the US economy. Alongside this, markets will assess the weekly Initial Jobless Claims and the Philadelphia Fed Manufacturing Index during the North American session, further shaping expectations for monetary policy going forward.
Market sentiment around the US Dollar has firmed in recent sessions, primarily due to increasing conviction that the Federal Reserve (Fed) will maintain its policy rate at the current 4.25%–4.50% range during its July policy meeting. This expectation is fueled by the June inflation report, which delivered mixed but generally strong signals about persistent price pressures.
June Inflation Supports Fed Pause
According to data from the US Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 2.7% year-over-year (YoY) in June, aligning with market expectations. However, the Core CPI, which excludes volatile food and energy prices, registered a 2.9% YoY increase, slightly below the 3.0% consensus estimate but still clearly above the Federal Reserve’s 2% target.
Adding to the narrative, the Producer Price Index (PPI) data released on Wednesday showed no monthly change for June, surprising analysts, while the Core PPI rose 2.6% YoY, suggesting that upstream inflationary pressures remain persistent.
These inflation metrics have prompted various Fed officials to adopt a cautious stance. Dallas Fed President Lorie Logan stated that the central bank may need to hold rates steady for longer to counteract tariff-induced price pressures.
Similarly, New York Fed President John Williams emphasized that the current monetary policy stance is appropriate and allows room to evaluate economic conditions before taking further action.
The Fed’s Beige Book, released on Wednesday, reinforces this view by highlighting stable business activity, moderated inflation, and growing input cost pressures, all of which contribute to the Fed’s data-dependent approach.
Political Headlines Add a Geopolitical Risk Premium
Beyond domestic data, the US Dollar has also been buoyed by emerging geopolitical developments, most notably, a renewed push by the US President to pursue aggressive tariff policies.
On Wednesday, the US President announced plans to send a letter to over 150 countries, informing them of a universal 10% tariff on goods exported to the United States. He clarified that these countries are not major economic players like China or Japan, but still contribute to the US trade deficit. He also hinted that the tariff rate could rise to 15% or even 20%, though he refrained from confirming any immediate hikes.
As for Canada, the President said it was “too early” to determine whether new tariffs would apply, but he expressed optimism about concluding a trade deal with India in the near future.
This development has injected a dose of uncertainty into global trade dynamics, potentially reinforcing safe-haven flows into the USD, particularly in a global environment where central banks in Europe and Asia are shifting toward more dovish postures.
Technical Outlook: DXY Targets 98.75, Faces Resistance
From a technical analysis standpoint, the US Dollar Index is attempting to break through short-term resistance at 98.50, a level it briefly touched in early June. A sustained break above this threshold could open the door for a test of the 98.75–99.00 resistance zone, which aligns with the 50-day moving average and previous supply zones.
Momentum indicators such as the Relative Strength Index (RSI) and MACD are trending upward, suggesting potential for further gains if retail sales data comes in strong.
On the downside, initial support lies near 98.10, followed by the 97.80 level, which served as a base during last week’s consolidation phase. A break below these zones could signal renewed weakness, particularly if US macro data disappoints.
Conclusion
The US Dollar Index rising toward 98.50 ahead of key data releases reflects a complex mix of monetary policy expectations, inflationary developments, and geopolitical risks. With retail sales, jobless claims, and manufacturing indicators all on deck, the next 24 hours could prove pivotal in shaping the near-term direction of the USD.
For now, traders appear to favor the Greenback, betting that a combination of steady Fed policy and heightened global uncertainty will keep the US Dollar well-bid.
