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The US Dollar Index climbed to 100.86 on Friday before reversing its gains.
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Optimism surrounding the US-UK trade deal is fading rapidly.
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The index now appears poised to retest the previous resistance at 100.22, which could act as new support.
The US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against six major currencies, is reversing its gains this Friday ahead of the upcoming US-China trade talks in Switzerland over the weekend. After reaching a nearly one-month high of 100.86 earlier in the day, the DXY is now trading around 100.45.
The initial optimism following the US-UK trade agreement is fading, as it becomes clear that the deal is not as comprehensive as initially portrayed. While the US retained its 10% tariffs on UK goods, it secured improved access to UK consumer markets. However, the deal falls short of the broader, more impactful agreement that President Donald Trump had promised.
This limited outcome, brokered with a relatively minor trading partner in terms of US exposure, casts doubt on the prospects of successful trade talks with China this weekend. Although sources indicate that President Trump mentioned the possibility of reducing tariffs by up to 50% if China shows cooperation, the situation suggests that the US may not hold the upper hand in negotiations, according to Bloomberg.
Daily Digest Market Movers: Fed Takes Center Stage This Friday
- While the focus remains on the upcoming US-China trade talks in Switzerland over the weekend, no major trade deal is expected, as discussions aim to defuse tensions rather than negotiate agreements. The Chinese Ministry of Commerce has reiterated that talks can only proceed if the US unilaterally lifts tariffs.
Meanwhile, a series of speeches from Federal Reserve officials are set to dominate Friday’s agenda:
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12:30 GMT: Federal Reserve Governor Adriana Kugler and New York Fed President John Williams will discuss employment at the Reykjavik Economic Conference 2025 in Iceland.
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14:00 GMT: Federal Reserve Bank of Chicago President Austan Goolsbee will deliver opening remarks at the Fed Listens event, focusing on Midwest perspectives, at the Federal Reserve Bank of Chicago.
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15:30 GMT: Federal Reserve Governor Christopher Waller will participate in a monetary policy panel at the Hoover Monetary Policy Conference in Stanford.
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22:45 GMT: Federal Reserve Governor Lisa Cook, Cleveland Fed President Beth Hammack, and St. Louis Fed President Alberto Musalem will discuss productivity dynamics at the Hoover Monetary Policy Conference.
- Equities are slightly higher on Friday, with European indices averaging a 0.5% gain. US futures remain flat to slightly positive, up less than 0.5%.
- The CME FedWatch tool shows a 17.1% probability of a rate cut at the Federal Reserve’s June meeting, while the odds of a rate reduction at the July 30 decision stand at 63.2%. Meanwhile, US 10-year Treasury yields have risen to around 4.37%, recovering from a mid-week dip.
US Dollar Index Technical Analysis: Cautious Optimism
The US Dollar Index (DXY) has broken above a significant resistance level at 100.22, showing bullish momentum. However, questions persist regarding the impact of the recent US-UK trade agreement, which failed to eliminate tariffs on UK goods, potentially keeping consumer prices elevated and raising stagflation risks.
The next resistance is at 101.90, a crucial level during December 2023 and the base for the inverted head-and-shoulders pattern in summer 2024. If bullish momentum continues, the 55-day Simple Moving Average (SMA) at 102.47 could be tested.
The previous resistance at 100.22 should now act as support. Below that, the 97.73 level may come into play if a bearish catalyst emerges. Further downside risks include thin support at 96.94, with lower targets at 95.25 and 94.56—levels not seen since 2022.
While the DXY shows signs of strength, lingering concerns about trade policies and economic impacts may temper bullish sentiment in the coming sessions.
