The US Dollar Index (DXY), which reflects the value of the U.S. Dollar against six major currencies, is currently around 99.09 after a recovery from an earlier decrease. This drop followed President Donald Trump’s decision to postpone tariffs on EU goods from June 1 to July 9. This delay has eased market tensions temporarily and boosted risk assets. However, economic challenges are still present. The tax bill proposed by President Trump is nearing a Senate vote, which may worsen the US debt situation as rising yields could lead to higher demand for US debt premiums.

Reduction in Bearish Dollar Positions

In recent market activity, bearish positions on the US Dollar have decreased from $16.5 billion to $12.4 billion. European stocks have risen over 1% with a sense of optimism, and US futures show positive movement. Due to Memorial Day, the US economic calendar is quiet. Attention is turning to upcoming GDP data and Personal Consumption Expenditure figures. According to the CME FedWatch tool, there is just a 5.6% chance of a Federal Reserve interest rate cut in June. On a technical note, the DXY is showing signs of recovery after hitting recent lows, but concerns about the economy persist. Resistance is at 100.22, with a trend line near 100.80. Continued selling pressure could push the index down to this year’s low of 97.91. As the market reacts to the postponed tariffs on EU goods, the Dollar’s slight rebound might seem reassuring. However, this is likely driven by sentiment rather than real improvement in fundamentals. The temporary relief from trade delays shouldn’t overshadow ongoing underlying pressures.

Tax Bill Vote and Fiscal Deficit Expectations

The upcoming Senate vote on the tax bill is a key focus. If it passes, it may increase the fiscal deficit, leading to higher Treasury yields. This situation could raise borrowing costs, making dollar-denominated assets more attractive but not uniformly. Timing is crucial. Recent movements in the currency market show a reduction in net bearish bets on the Dollar, dropping from $16.5 billion to $12.4 billion in just one week. This indicates a reduction in pessimism, although it doesn’t reflect outright confidence. Traders appear to be positioning themselves carefully ahead of important events, pulling back some risk without fully committing to a bullish stance. Looking at the broader market, there is a slight increase in risk appetite. The rise in European equities over 1% isn’t happening in isolation; it may be linked to the trade reprieve and a quiet US economic calendar during Memorial Day. Still, sluggish global growth, fiscal challenges, and a lack of immediate Fed policy triggers keep traders cautious. Expectations for the Federal Reserve, as reflected by the CME FedWatch tool, stand at just 5.6% for a cut in June. This low probability signals that policymakers are exercising patience. This approach aligns with inflation data, especially the upcoming Personal Consumption Expenditures (PCE) numbers, which will influence future expectations. The Dollar Index is attempting to recover from last week’s dip. A key resistance level is at 100.22, just below a stronger level at 100.80 marked by a long-term trend line. Short rallies without strong conviction may struggle at these resistance points, while any renewed weakness could pull the Dollar back toward its yearly low of 97.91. These levels are crucial for traders navigating short-term volatility. In the meantime, we expect lighter trading volumes until US data releases pick up again. Even low liquidity can lead to sharp price changes. Premiums in the options market and shifts in futures positioning should be closely monitored, as they often react before the underlying markets. We continue to assess upcoming economic signals from both sides of the Atlantic. European optimism might give short boosts to the euro, but the Dollar’s next movements will depend significantly on domestic fiscal policy discussions and inflation data. Keeping timeframes tight and responses quick will be beneficial as the market forms consensus on rising debt levels and delayed tariffs. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now