US Dollar Index Price Forecast: Softens to near 101.00, while technicals remain bullish

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 101.10 in the early European trading hours on Wednesday. The DXY declines as traders have largely priced out expectations of a US Federal Reserve (Fed) rate hike this month following softer-than-expected US June consumer and producer price inflation data.

Cleveland Fed President Beth Hammack said on Friday that interest rates may need to rise to beat back persistent inflation. However, markets continue to expect no change to rates at the Fed's next meeting on July 29, with Fed funds futures pricing an implied 74.9% odds of a rate hold, compared to a 61.5% probability a month ago, according to the CME FedWatch tool.

Technical Analysis:

In the daily chart, the near-term bias of the Dollar Index Spot is bullish as price holds above the 100-day simple moving average (SMA) and the Bollinger middle band, suggesting ongoing demand on minor pullbacks. The Bollinger upper band caps the upside in the very short term, while the Relative Strength Index (RSI) at 57 stays in positive territory, hinting at constructive but not overextended momentum.

On the topside, immediate resistance is located at the Bollinger upper band near 101.50. A clear break above this level would open the way for the June 24 high of 101.80.

On the downside, initial support emerges at the Bollinger middle band at 101.05, followed by the lower band near 100.55, with deeper support at the 100-day SMA around 99.62, which reinforces the medium-term bullish structure as long as it holds.

Hammack flags broad-based inflation pressures, supporting a more hawkish Fed tone

Fed’s Hammack delivers a notably more hawkish tone, with a 7.2/10 FXS Speechtracker score standing above the 6.6/10 historical average, underscoring heightened concern about persistent inflation. The emphasis on businesses calling for action to curb inflation and consumers unable to make ends meet, alongside references to energy, supply chains, insurance, and AI data center pressures, points to broad-based and socially sensitive price strains even amid solid growth and stable consumer spending. Persistently high inflation being framed as the “bigger concern” reinforces a bias toward keeping policy restrictive for longer, which is supportive of the Dollar.

The FXS Fed Sentiment Index has risen by 2.06 points to 128.64, firmly in hawkish territory and consistent with the above-baseline FXS Speechtracker score. An index level well above 100 signals that, despite decent growth and spending data, the balance of Fed communication is skewing toward inflation vigilance, a backdrop that typically underpins the Dollar against the Euro and Yen.