U.S. Dollar Index climbs toward 100 after GDP miss shifts Fed outlook
U.S. Dollar Index gains on Fed shift
The U.S. Dollar Index (DXY) is pushing higher for the third straight session, currently trading near 99.6 after a clean break above the 99.55 resistance level that had capped gains last week. This upside move comes in the wake of weaker-than-expected economic data but the reaction reflects shifting interest rate expectations, not just economic softness.
Data from the U.S. Commerce Department revealed that the U.S. economy contracted by an annualized 0.3% in the first quarter of 2025, missing the forecasted 0.4% growth and sharply reversing from the previous quarter’s 2.4% expansion. While this would normally weigh on the dollar, traders responded differently by scaling back expectations of a full percentage point of rate cuts from the Federal Reserve this year. That shift in sentiment has added fuel to the dollar’s latest recovery.
The U.S. Dollar Index may face low-volume trade today due to Labour Day closures
From a technical perspective, DXY’s break above 99.55 now turns that former resistance into immediate support. Price action is increasingly constructive, with the index trading above both its 20 and 50 exponential moving averages on the 4-hour chart. The relative strength index supports this view. The RSI on the 4-hour chart is still rising and remains below the overbought threshold, providing headroom for further gains.
DXY price dynamics (April - May 2025). Source: TradingView
The next major psychological level at 100 now comes into focus. However, near-term volatility could be subdued. Although the ISM Manufacturing PMI report is due later today, most markets are closed for the Labour Day holiday, which may restrict volatility and dampen volume.
In summary, the dollar’s renewed strength is being driven more by recalibrated Fed expectations than by economic optimism. As long as rate-cut bets remain tempered and technical levels continue to hold, the path toward 100 on the DXY remains in play.
The Dollar Index traded sideways for six days as traders awaited key U.S. economic data. Repeated intraday double tops and bottoms showed technical indecision in a tight 1% range.
