DXY: Concerns About the Fed's Independence and Economic Uncertainty Undermine the Dollar

[Ben Graham]

The US Dollar Index (DXY), which tracks the dollar's performance against a basket of currencies, is under pressure, trading at levels not seen since February 2022.

As expected, the US Federal Reserve left interest rates unchanged on Wednesday. However, two governors, Stephen Moore and Christopher Waller, expressed disagreement with a further 25 basis-point easing.

In the press conference following the meeting, Fed Chair Jerome Powell emphasized that inflation still significantly exceeds the target level of 2%, signaling a hawkish stance. However, such firm comments provide weak support for the dollar amid the accumulating negative drivers. Market participants are confident that the Fed will maintain the status quo at least until the end of the quarter and likely until Powell's term ends in May, despite market expectations of two rate cuts in 2026.

The criminal investigation against Powell and the increasing attempts to dismiss Fed Governor Lisa Cook highlight the risks to the Fed's independence. Additionally, economic and geopolitical uncertainties stemming from President Donald Trump's policies, along with the global trend of dedollarization, confirm a short-term negative outlook for the US dollar.

All of the above have become a primary factor in the selling of the US dollar. The fundamental backdrop favors bears, confirming the likelihood of further short-term depreciation of the dollar.

Moreover, from a technical perspective, the oscillators on the daily chart are negative and have exited the oversold zone, confirming the negative forecast.

The table below shows the percentage changes in the US dollar against major currencies for the day, with the greatest strength against the Japanese yen.

The material has been provided by InstaForex Company - www.instaforex.com