The US Dollar Index (DXY) extended its advance for a third session, reaching 99.54 on Thursday, the highest level since 4 April, before easing in early European trade to about 99.35. Even with the dip, it was still up close to 0.15% on the day as markets turned cautious ahead of US releases. The data calendar includes the preliminary Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, which can shape expectations for the US Dollar’s policy-sensitive outlook.
Technically, the near-term picture remains constructive. DXY is holding above the 200-period Exponential Moving Average (EMA) on the four-hour chart, while the Moving Average Convergence Divergence (MACD) has edged into positive territory and the Relative Strength Index (RSI) sits around 58. Initial support is seen at the 200-period EMA near 98.81; a break below that level would undermine the current tone, while holding it keeps the focus on recovery attempts through the 99.50 area.
Macroeconomic Drivers and Policy Outlook
We are seeing continued strength in the US Dollar Index, which is holding above the significant 99.00 mark. This upward momentum is being driven by expectations that the Federal Reserve will maintain a hawkish policy stance. The upcoming Personal Consumption Expenditures (PCE) report will be a key event that could confirm this outlook and add fuel to the dollar’s rally.
Recent economic data gives us confidence in this view, with the latest Core PCE reading at 2.8%, remaining stubbornly above the Fed’s 2% target. With the federal funds rate holding steady in the 5.25% to 5.50% range, any signs of persistent inflation will almost certainly keep borrowing costs elevated. This policy divergence is notable as other major central banks are beginning to signal rate cuts, which enhances the dollar’s yield advantage.
Tactical Positioning and Risk Management
The technical picture supports a bullish strategy, as the DXY is staying above its 200-period EMA, a key support level around 98.81. Therefore, we are looking at buying call options on dollar index futures or related ETFs for the coming weeks. A move towards the psychological 100.00 level looks increasingly probable if the upcoming data meets expectations.
To manage risk, we view the 98.81 level as a critical line of defense. A decisive break below this support would weaken the current bullish structure and force us to reconsider our long positions. Traders could consider buying out-of-the-money put options as a hedge against a surprise downturn following the PCE release.
Historically, we saw the DXY trade well above 103 in late 2023, suggesting there is still significant room for appreciation from current levels. Ongoing geopolitical tensions also continue to bolster the dollar’s safe-haven appeal. This backdrop confirms our strategy to position for further dollar strength against other major currencies in the near term.
