Here’s Why the US Dollar Index (DXY) is Surging

Here’s Why the US Dollar Index (DXY) is Surging
  • The US dollar index (DXY) had climbed to the highest mark in roughly two years.
  • The current war in Europe led to a call for a haven.
  • Market players expect Fed to start increasing interest rates soon.

The US dollar index has seen impressive performance over the latest few weeks. That came as safe havens see increased demand. The index trades around $99.12, near its highest zone since 2020 May. It has gained more than 11% from 2021’s lowest level.

Safe-Haven and Fed Reserve

Fed Reserve and haven are the reasons behind the sharp surge in the United States dollar index over the previous few weeks.

The index had declined as market players worried about the current war in Europe. Russia extended Ukraine’s military operations over the weekend. Moreover, it had many individuals at the military base around Poland losing their lives.

Market players have opted to the US dollar for safety amid the global crisis. For instance, the DXY index saw a sharp jump in 2020 March when the World Health Organization declared COVID a global pandemic. That occurs due to the stability of the American economy and the dollar being a worldwide currency reserve.

Another reason is that Fed might start raising interest rates during this week. The bank will kick—start its meeting tomorrow, Tuesday. It will then offer its decision on Wednesday. Expert expects Fed to raise rates and suggests further surges this year.

The latest developments suggest more tightening. For instance, last week’s data indicated that American consumer inflation climbed to 40-years peaks in February. Moreover, inflation will likely keep surging in the upcoming months. That’s because commodities see surged costs.

Meanwhile, earlier data shows that the American labor market tightens quickly. The unemployment rate declined to 3.8%. That comes the nation’s economy added more than 600K jobs.

US Dollar Index (DXY) Prediction

The weekly chart shows the DXY index maintained massive bullish bias over the last couple of months. Such developments saw the index moving past the 61.8% FIB retracement area. Also, the dollar index climbed past the 25- and 50-week MAs while the RSI moved past the overbought region. With that, it has a higher probability of maintaining uptrends in the upcoming weeks as bulls eye the resistance near 4100. The index moving under $98 will invalidate this outlook.