CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

US dollar hardens pp ahead of the Fed after CPI headaches boost Treasury yields

The US dollar continues to hold recent gains ahead of the Fed; today’s FOMC meeting will be key for market movements going forward and if the Fed raise by 0.75%, will USD resume its uptrend?

The US dollar has made multi-year highs against several currencies this week as well as a 20-year peak on the DXY index, a US dollar index most watched by markets.

This is due to the fallout from the US CPI number last Friday that spooked markets into fears that the Federal Reserve is losing control over price rises throughout the economy.

As a result, today’s Federal Open Market Committee (FOMC) meeting takes centre stage.

Long term chart USD (DXY) Index, USD/JPY, GBP/USD and AUD/USD

The headline CPI number of 8.6% year-on-year to the end of May beat the 8.3% anticipated. The absolute level of it is worrying enough, but of most concern is the re-acceleration of rising prices.

Overnight we saw PPI print at 10.8% for the same period instead of 10.9% forecast. Although PPI was a slight miss, the problem remains that higher costs for producers and companies are potentially coming down the pipe and into CPI.

Businesses can either absorb the higher costs and reduce profitability or pass on the costs to consumers. In a free-market economy like the US, passing on rising costs is the option most favoured.

This is the danger that is lurking for the Fed and has led to an increase of market expectations for a rate hike today from 50 basis points (bps) to 75 bps. The language in the post meeting press conference will be scrutinised closely for clues on the path of future hikes. If the commentary isn’t as hawkish as the market desires, the tail risk of hyper-inflation could become a mainstream risk.

All of this extra lifting in rate hike expectations from the Fed has led to Treasury yields racing higher across the curve. Elevated interest rates have boosted the US dollar. Going into today’s meeting, the option market reveals a scramble toward insurance on a higher USD against EUR, GBP, AUD, NZD and CAD via risk reversals.

They are showing an increasing preference for puts (sell) for these currencies against USD calls (buy). CHF and JPY risk reversals are more neutral against USD. Clues could be found in the reaction to Fed actions and words for future USD direction.

US dollar (DXY) index technical analysis

The DXY has eclipsed last month’s peak to make a fresh 20-year high overnight. The next historical high that may offer resistance is at 109.77 from September 2002.

Momentum appears to be bullish with positive gradients on all short, medium and long-term simple moving averages (SMA). Making this high saw the price move outside the upper band of 21-day SMA based Bollinger Band.A close back inside the band could indicate a potential reversal.

Support might be at 10- and 21-day SMAs, currently at 103.46 and 102.83 respectively.


This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.


The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

Start trading forex today

Find opportunity on the world’s most-traded – and most-volatile – financial market

  • Trade spreads from just 0.6 points on EUR/USD
  • Analyse with clear, fast charts
  • Speculate wherever you are with our intuitive mobile apps

See an FX opportunity?

Try a risk-free trade in your demo account, and see whether you’re onto something.

  • Log in to your demo
  • Take your position
  • See whether your hunch pays off

See an FX opportunity?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Get spreads from just 0.6 points on popular pairs
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform

See an FX opportunity?

Don’t miss your chance. Log in to take your position.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.