The US Dollar Index (DXY) fell to a two-month low near 106.20, as investor sentiment shifted amid renewed expectations for a potential shift in Federal Reserve policy. The greenback’s weakness comes as markets digest softening economic data and speculation that the Fed may take a more dovish approach in the months ahead.
The dollar has faced increased selling pressure after recent US economic reports pointed to slowing growth and moderating inflation, raising questions about whether the Fed will maintain its restrictive stance for much longer. While policymakers have continued to stress a data-dependent approach, traders are beginning to price in a possible rate cut later in the year.
Meanwhile, the 100-day simple moving average (SMA) has acted as a critical resistance level, keeping the DXY under pressure. A decisive break below 106.00 could accelerate downside momentum, with the next major support level seen around 105.50. Conversely, any signs of stronger US economic resilience could spark a rebound, with immediate resistance near 106.80.
The decline in the US dollar has provided support to risk-sensitive assets, including equities and emerging market currencies, which had been weighed down by a stronger greenback in previous months. However, uncertainty surrounding US trade policies and global growth prospects continues to keep risk sentiment in check.
Looking ahead, traders will closely watch upcoming US inflation data and comments from Federal Reserve officials, which could determine the dollar’s next move. Any hawkish signals from the Fed could limit further downside, while weaker inflation prints could reinforce expectations for a softer policy stance.
For now, the US Dollar Index remains vulnerable, with technical and macroeconomic factors weighing on its outlook. Unless sentiment shifts in favor of the greenback, further losses may be likely as investors reassess the Fed’s path forward.
