The US Dollar Index (DXY) crashed to its lowest point in three years as concerns about the Federal Reserve’s independence remained. The DXY Index dropped to a low of $96.98, down nearly 12% from its highest point this year, indicating that it has entered a correction.
US Dollar Index crashed amid Fed independence concerns
The US Dollar Index plummeted this week as the greenback continued its downward trend against other currencies. The euro rose to a high of 1.1740, its highest point since September 2021.
Similarly, the Swiss franc jumped to 0.8012 against the US dollar, its highest point since July 2011. The US dollar has crashed against other popular currencies like the British pound, Japanese yen, and Canadian dollar.
This crash accelerated this week after Donald Trump brokered a truce between the Iran and Israel, ending one of the top geopolitical crises of the year. In most cases, the US dollar tends to decline when major geopolitical events conclude, as it loses its status as a safe haven.
The dollar index also plunged after media reports suggested that Donald Trump was considering making an announcement on his preferred Federal Reserve Chairman in a bid to undercut Jerome Powell, the Fed official he appointed.
Trump is considering several officials, including Kevin Warsh, Kevin Hassett, and Scott Bessent. Christopher Waller, a Fed official who has supported cutting interest rates in July, is also being considered.
Analysts worry that nominating Powell’s successor would be bearish because it would undermine Fed’s independence.
Read more: Powell warns Trump’s steep tariffs may trigger higher inflation and slow US growth
Jay Powell has been highly hawkish
Trump has complained about Powell in recent months due to his monetary policy stance. In two testimonies to Congress this week, he reiterated that the bank would maintain a wait-and-see approach.
Powell and most Fed officials worry that Trump’s tariffs will lead to high inflation in the coming months. Recent data showed that the US consumer price index (CPI) rose to 2.4% in May from 2.3% in the previous month. This increase was lower than median estimate of 2.5%.
The core consumer price index remained unchanged at 2.8%, much higher than the Federal Reserve’s target of 2.0%. Most analysts expect inflation will remain higher in the coming months as the impact of tariffs start to be felt.
On the positive side, crude oil prices have dropped in the past few days, with Brent falling to $67 and WTI plunging to $65. These two popular benchmarks surged to over $80 earlier during the week.
The next key catalyst for the US dollar index will be the upcoming personal consumption expenditure (PCE) data. Economists expect the report to show that the headline PCE rose to 2.3% in May from 2.1% in the previous month.
DXY Index technical analysis
US Dollar Index chart | Source: TradingView
The weekly chart shows that the DXY Index has plunged in the past few weeks, moving from the year-to-date high of $110.13 to the current $97.35, its lowest level in years.
It has moved below the important support level at $99.51, its lowest swing in July last year. Moving below that level confirmed the bearish sentiment.
The index has moved below the 50-week and 100-week Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) and the MACD indicators have also continued falling.
Therefore, the index will continue falling as sellers target the key support at $90. A move above the resistance at $99.5 will invalidate the bearish view.
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