DXY Firms Above 99.50 as Markets Brace for Fed Clarity from FOMC Minutes

Market Overview

The US Dollar Index (DXY) holds firm above major 99.50 level during European session on Wednesday as investors await FOMC meeting minutes release tonight. With bonds yields easing and equities soaring, the traders are closely monitoring clues on Fed’s outlook due to renewed inflation risks and trade policy uncertainty.

Fundamental Analysis

The DXY staged a meaningful recovery on Tuesday following upbeat US consumer confidence data and progress on US-EU trade negotiations. Despite a fall of 1% in US 10-year yields, the dollar remained resilient, supported by stable monetary policy in the near term.

The Fed is set to release the minutes of May 6-7 meeting today. The minutes are expected to shed light on how officials evaluate the mixed economic data. At the meeting, the Fed maintained the interest rates at 4.25% – 4.50%, citing moderate expansion and inflation above 2% target. However, the Fed Chair Powell acknowledged in his press conference that trade tariffs could lead inflation and unemployment higher.

Traders are now focused to find out whether the Fed will give any clue about shift in balance of risk assessment, especially in the context of trade negotiation and bond yields. With next rate meeting on June 18, today’s minutes may help find short-term expectations and dollar sentiment.

Uncertainty prevails regarding reciprocal tariffs and America’s growing fiscal deficits. Both pose a strong downside risk for the greenback. Still, the month-end dollar buying and expected Core PCE inflation numbers to be released on Friday could limit the downside potential for the dollar index.

Technical Analysis

Currently, the dollar index trades around 99.53 with immediate resistance at 20-day SMA around 100.10 ahead of next level at 100.80. The support remains at 97.90 ahead of 97.40. With no clear momentum on the day, the consolidating behavior may continue with a mild upside bias.

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