US Dollar Price Forecast: Fed Hike Bets Lift DXY as EUR/USD and GBP/USD Fall

US Dollar News: Iran Escalation and Fed Hike Bets Lift Dollar

Beginning September 2, the dollar will be stronger against multiple currencies due to new concerns arising from Iran dealing with the U.S. including the price of oil, inflation and increases in bond yields. Before the start of trading most markets set the probability of a rate hike by the Fed in September as 68%. It is clear that the market believes Warsh's speech , the uncertainty of inflation, and an energy shock combined with the price of oil going up, have all added to the hawkish sentiments that are influencing this decision. In the U.S., data has been coming in below expectations, but this has not mattered because the market has other concerns, such as demand for safe haven currencies and the risk of inflation.

Dollar jumps against Euro due to strong inflation numbers. The inflation data from the Eurozone shows core inflation was 2.4%, while headline inflation was 3.3% with energy inflation at 14.3%. This far exceeds the inflation numbers from last year. This has increased the expectation for the European Central Bank to increase the deposit rate to 2.50% and rate hikes are expected when they meet next week.

Most expect interest rates will remain unchanged in the U.K. Also like in the Eurozone, the BoE has been dealing with higher inflation. The BoE has been able to address inflation and weaker labor market conditions, but new concerns have been the increased use of the Bank of England's long-term repo facility. On August 18, the BoE noted the use of this facility called Level C collateral, which is higher risk, had been used the most since 2020.

For September 2, synchronized tightening pressure is the main FX theme. The dollar should benefit from a combination of an upward shift in Fed hike expectations and safe-haven flows. Meanwhile, the euro should benefit from an ECB rate hike while Sterling should continue to feel pressure from both inflation and weaker domestic financial conditions.

U.S. Dollar Index Technical Analysis: DXY Reclaims 99.34 Support and Pushes Toward 99.90

The US Dollar Index is currently trading at 99.76 with price action continuing its rally from the 99.34 – 99.40 support region. Buyers clearly defended this region and pushed price above both the moving averages, showing a much stronger recovery from the previous consolidation.

I am currently long the US dollar Index. Looking for 99.90 as the next level of interest.

DXY has breached 99.57 and is trading up toward the 99.90 level. Currently, 100.09 is the next major resistance zone. If the bullish pressure continues, the price may cross the next resistance levels of 100.25 and 100.39. On the bearish side, I'll be watching the support levels of 99.73, 99.57, and the major support zone of 99.34 to 99.40.