US Dollar Index Holds Above 99.00 as Traders Await Fed Chair Warsh’s Jackson Hole Address

The US Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is drawing modest support after slipping modestly the prior day and hovering around 99.20 in Asian trading on Friday.

The Greenback is holding steady as investors adopt a cautious posture ahead of Federal Reserve Chair Kevin Warsh’s scheduled address at the annual Jackson Hole symposium, where markets are seeking guidance on the future trajectory of US interest rates.

The dollar is also getting a lift from US inflation data that came in stronger than expected earlier this week. The hotter‑than‑forecast CPI readings have bolstered market expectations for another rate hike before year‑end, with the CME FedWatch Tool now showing a 74% probability of a December increase. Meanwhile, traders are betting the Fed will hold steady at its upcoming September meeting, pricing in a 65% likelihood of no change for the time being.

Concerns about a potential US debt crisis and longer‑term dollar weakness continue to mount, partly driven by the Treasury’s recent expansion of its debt‑buyback program.

DXY Rebound Viewed as Corrective; Focus Shifts to Mid‑99 Retest

Strategists at Scotiabank argue that the latest dollar strength is countertrend, emphasizing that “we still view DXY gains as a correction against a still firmly entrenched downtrend on the charts.” They add that “after a strong rise on Wednesday, the near‑term focus returns to the index retesting the mid‑99 area,” suggesting that a further short‑term extension remains possible even within a broader bearish context.

Hammack Turns More Hawkish as Persistent Inflation Spurs Call to Act

Fed Governor Hammack delivered a decidedly hawkish message, scoring 8/10 on the FXS Speechtracker, modestly above the 7.5/10 baseline, highlighting heightened concern over lingering inflation. By stressing that “now is the time to act” and that current policy is not restrictive, and by noting that the neutral rate appears higher, Hammack signaled support for tighter policy than the market currently expects. Concerns about an emerging “inflationary mindset” and the risk of eroding public confidence in a return to 2% reinforce upside pressure on the dollar as participants re‑evaluate the rate outlook.

Technical Analysis:

On the daily chart, the Dollar Index spot is hovering at 99.20. The near‑term bias stays bearish as the price remains below the medium‑term 50‑day Exponential Moving Average (EMA), while holding near the short‑term nine‑day EMA pivot after a sustained pullback. The 14‑day Relative Strength Index (RSI) at 39.49 is below the neutral line, indicating lingering downside pressure but not yet reaching oversold territory, while the FXS Fed Sentiment Index has eased to 129.11, pointing to a less supportive policy environment for the dollar.

On the upside, initial resistance is located at the 50‑day EMA of 99.88; a sustained move above this level would be required to temper the bearish sentiment and provide room for a more broad‑based recovery. While no clear immediate horizontal support appears on the charts, a daily close decisively below the nine‑day EMA pivot at 99.18 would strengthen downside momentum and leave the index exposed to further short‑term declines.

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non‑standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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