The US Dollar Index (DXY), which tracks the US currency against a basket of currencies, is struggling to build on last week’s rebound from its lowest level since early August and is trading with a moderate negative bias during the early European session on Monday. The index is currently positioned just above the mid-98.00 areas, down over 0.10% for the day, and at the moment, it appears to have snapped a three-day winning streak to a one-week high, which it touched on Friday.
The 100-day simple moving average settled at 98.61 after an earlier rise, with the price now marginally lower. This alignment maintains a moderate bearish bias with the average acting as near-term resistance. A daily close above the 100-day SMA would ease the cap, while failure to reclaim it keeps downside risks present. The DXY remains below the 100-day simple moving average, which has started to fluctuate, maintaining a defensive tone. The slow drift in the slope of the mean highlights the lack of trend strength, and the indicator settling below it maintains pressure.
Meanwhile, the Moving Average Convergence-Convergence (MACD) line remains below the signal line and below zero, although it is trending higher, indicating fading bearish pressure. MACD momentum is improving as the line rises towards the zero mark, but a bullish crossover has not yet been achieved. Furthermore, the Relative Strength Index (RSI) stands at 42.99, below the mid-50 line, reflecting weak momentum. Recovery towards 50 can stabilize the tone. A decisive break above the 100-day SMA at 98.61 would shift focus to the upside, while a failure there would keep the sellers in control.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
DXY daily chart
Frequently asked questions about the US dollar
The US dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a large number of other countries where it is traded alongside local banknotes. It is the world’s most traded currency, accounting for more than 88% of total global forex trading volume, or an average of $6.6 trillion in transactions per day, according to 2022 data. After World War II, the US dollar took the place of 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 disappeared.
The most important factor affecting the value of the US dollar is monetary policy, which is shaped by the Federal Reserve. The Fed has two missions: achieving price stability (controlling inflation) and promoting full employment. The basic tool for achieving these two goals is adjusting interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, the Fed will raise interest rates, which helps the value of the US dollar. When the inflation rate falls below 2% or when the unemployment rate is very high, the Fed may cut interest rates, which affects the dollar.
In extreme cases, the Fed could also print more dollars and activate quantitative easing (QE). Quantitative easing is the process by which the Federal Reserve dramatically increases the flow of credit into a stuck financial system. It is a non-standard policy measure used when credit dries up because banks will not lend to each other (due to fear of the counterparty defaulting). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It has been the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy U.S. government bonds mostly from financial institutions. Quantitative easing usually leads to a weakening of the US dollar.
Quantitative tightening (QT) is the reverse process whereby the Fed stops purchasing bonds from financial institutions and does not reinvest capital from bonds it holds outstanding in new purchases. It is usually positive for the US dollar.
