Powell pressed the "slow motion button", will the US dollar break 98 before PCE?
2025-09-24 20:42:47
Before the US market opened on Wednesday (September 24), the US dollar index was fluctuating around 97.70, continuing the pullback-rebound pattern that followed last week's Powell press conference. The 38.2% retracement level of last week's rebound (97.20) was briefly broken before quickly recovering, pushing the price back into buying territory and repeatedly testing the 97.80 level. A successful recapture of 97.80 could theoretically push the price towards 98.30.
US preliminary PMI data for September showed cooling momentum: the services sector fell from 54.5 in August to 53.9, while the manufacturing sector dipped from 53 to 52. Both indicators were in line with market consensus, but lacked positive surprises, providing limited marginal support for the US dollar. Meanwhile, Powell emphasized the "challenging situation" facing policy, and further rate cuts were not a foregone conclusion. He reiterated that the current interest rate range provides the central bank with "room for maneuver." In contrast, Governor Michelle Bowman stated that if demand fails to recover, employment may come under pressure, increasing the "urgency of rate cuts."
New Federal Reserve Governor Miran this week proposed that the neutral rate of interest is near zero and that current interest rates are extremely tight, but this assessment has not yet reached a consensus. Several officials believe that policy is "only slightly tight," while US growth remains above its non-inflationary potential. Miran attributed part of the recent month's increase in inflation to the impact of tariffs, calling it a "one-off," but the transmission chain remains to be verified.
At the interest rate trading level, the auction of $69 billion two-year Treasury bonds received a mediocre response; today, $28 billion of two-year floating-rate notes and $70 billion of five-year notes will continue to be issued. Supply pressure will affect the fine-tuning of U.S. Treasury yields in the short term, which in turn will affect the pricing of the U.S. dollar interest rate spread.
Looking ahead to the next few days, durable goods orders and core PCE data will be released, followed by a GDP update. If the gap between inflation and growth continues to widen, the Fed's path of gradual rate cuts will take precedence over abrupt cuts. In the medium-term framework, the Fed cut interest rates by 25 basis points on September 17 and is inclined to continue cutting rates in the coming quarters, with the upper limit of policy likely to gradually fall from 4.25% to a neutral level closer to 3%. However, if easing is too rapid, demand will be reignited beyond the one-off tariff-induced shock, potentially leading to a resurgence of secondary inflation. In Europe, the ECB is seen as "close to target," while fluctuations in the Franco-German sovereign spread are exacerbating uncertainty in the European bond market, intermittently boosting safe-haven demand and the dollar.
To sum up, the impact of fundamentals on the US dollar index presents three main lines: 1) The path of "lowering interest rates but not being reckless" provides time-for-space support for the US dollar; 2) The marginal slowdown in growth and softening employment impose an upper limit constraint on the US dollar; 3) Fluctuations in global interest rate differentials and European debt risks temporarily strengthen the safe-haven premium of the US dollar.
The four-hour candlestick chart (240 minutes) shows the upper, middle, and lower Bollinger Bands at 97.7905, 97.4454, and 97.1003, respectively. The price is currently trading above the middle Bollinger Band and approaching the upper Bollinger Band, indicating short-term strength but facing resistance. Following the pullback from a long lower shadow in mid-September (low of 96.2109), the price has formed a higher level near 97.1820 and has since risen again to form a double resistance zone around 97.7479 and 97.8179.
In terms of momentum, the MACD indicator DIFF = 0.0330, DEA = 0.0178, and the histogram is positive and slightly narrowing, showing a "slowing down from a high position" rhythm, suggesting that the upward momentum is still there but the efficiency of the promotion is declining. A new catalyst (such as PCE) is needed to drive an effective breakthrough. The relative strength index RSI (14) is reported at 62.2320, which is in a strong but not overheated range, a typical "strong oscillation" structure.
The support-resistance structure is clear: the first support is at the middle Bollinger band at 97.4454, and the second support is at the 38.2% Fibonacci retracement level at 97.20. The first resistance level above is between 97.7479 and 97.8179. If a large-volume bullish candlestick breaks through 97.80, the technical target will naturally be 98.30. If the upward push is blocked and the price falls back below 97.45, the short-term trend will shift to a box-shaped range between the middle and lower bands (97.10).
Short-term (1-3 days): It tends to trade sideways at a high level between 97.45 and 97.80 before events drive it; if the data gives a combination of "inflation resilience + decent growth", the US dollar index has the opportunity to break through 97.80 and point to 98.30 in the form of "volume breakthrough"; on the contrary, if PCE and demand weaken simultaneously, it would not be surprising to retreat to 97.45 or even retest 97.20.
Medium-term (1-4 weeks): Under the policy anchor of "gradual rate cuts," the dollar's medium-term logic relies more on relative global economic conditions and the structure of interest rate differentials. If European interest rate differentials continue to fluctuate and US growth only moderates, the dollar will be easily defended and difficult to attack, favoring a pattern of "consolidation at high levels and trading on data impulses." If employment deteriorates significantly and inflation declines rapidly, the dollar's upward trend will give way to a deeper mean reversion, with the key observation zone below 97.20, between 97.10 and 96.80 (near the lower Bollinger band and above the previous low).
Fundamentals: The tug-of-war between interest rate path and growth/inflation
US preliminary PMI data for September showed cooling momentum: the services sector fell from 54.5 in August to 53.9, while the manufacturing sector dipped from 53 to 52. Both indicators were in line with market consensus, but lacked positive surprises, providing limited marginal support for the US dollar. Meanwhile, Powell emphasized the "challenging situation" facing policy, and further rate cuts were not a foregone conclusion. He reiterated that the current interest rate range provides the central bank with "room for maneuver." In contrast, Governor Michelle Bowman stated that if demand fails to recover, employment may come under pressure, increasing the "urgency of rate cuts."
New Federal Reserve Governor Miran this week proposed that the neutral rate of interest is near zero and that current interest rates are extremely tight, but this assessment has not yet reached a consensus. Several officials believe that policy is "only slightly tight," while US growth remains above its non-inflationary potential. Miran attributed part of the recent month's increase in inflation to the impact of tariffs, calling it a "one-off," but the transmission chain remains to be verified.
At the interest rate trading level, the auction of $69 billion two-year Treasury bonds received a mediocre response; today, $28 billion of two-year floating-rate notes and $70 billion of five-year notes will continue to be issued. Supply pressure will affect the fine-tuning of U.S. Treasury yields in the short term, which in turn will affect the pricing of the U.S. dollar interest rate spread.
Looking ahead to the next few days, durable goods orders and core PCE data will be released, followed by a GDP update. If the gap between inflation and growth continues to widen, the Fed's path of gradual rate cuts will take precedence over abrupt cuts. In the medium-term framework, the Fed cut interest rates by 25 basis points on September 17 and is inclined to continue cutting rates in the coming quarters, with the upper limit of policy likely to gradually fall from 4.25% to a neutral level closer to 3%. However, if easing is too rapid, demand will be reignited beyond the one-off tariff-induced shock, potentially leading to a resurgence of secondary inflation. In Europe, the ECB is seen as "close to target," while fluctuations in the Franco-German sovereign spread are exacerbating uncertainty in the European bond market, intermittently boosting safe-haven demand and the dollar.
To sum up, the impact of fundamentals on the US dollar index presents three main lines: 1) The path of "lowering interest rates but not being reckless" provides time-for-space support for the US dollar; 2) The marginal slowdown in growth and softening employment impose an upper limit constraint on the US dollar; 3) Fluctuations in global interest rate differentials and European debt risks temporarily strengthen the safe-haven premium of the US dollar.
Technical aspects:
The four-hour candlestick chart (240 minutes) shows the upper, middle, and lower Bollinger Bands at 97.7905, 97.4454, and 97.1003, respectively. The price is currently trading above the middle Bollinger Band and approaching the upper Bollinger Band, indicating short-term strength but facing resistance. Following the pullback from a long lower shadow in mid-September (low of 96.2109), the price has formed a higher level near 97.1820 and has since risen again to form a double resistance zone around 97.7479 and 97.8179.
In terms of momentum, the MACD indicator DIFF = 0.0330, DEA = 0.0178, and the histogram is positive and slightly narrowing, showing a "slowing down from a high position" rhythm, suggesting that the upward momentum is still there but the efficiency of the promotion is declining. A new catalyst (such as PCE) is needed to drive an effective breakthrough. The relative strength index RSI (14) is reported at 62.2320, which is in a strong but not overheated range, a typical "strong oscillation" structure.
The support-resistance structure is clear: the first support is at the middle Bollinger band at 97.4454, and the second support is at the 38.2% Fibonacci retracement level at 97.20. The first resistance level above is between 97.7479 and 97.8179. If a large-volume bullish candlestick breaks through 97.80, the technical target will naturally be 98.30. If the upward push is blocked and the price falls back below 97.45, the short-term trend will shift to a box-shaped range between the middle and lower bands (97.10).
Market outlook:
Short-term (1-3 days): It tends to trade sideways at a high level between 97.45 and 97.80 before events drive it; if the data gives a combination of "inflation resilience + decent growth", the US dollar index has the opportunity to break through 97.80 and point to 98.30 in the form of "volume breakthrough"; on the contrary, if PCE and demand weaken simultaneously, it would not be surprising to retreat to 97.45 or even retest 97.20.
Medium-term (1-4 weeks): Under the policy anchor of "gradual rate cuts," the dollar's medium-term logic relies more on relative global economic conditions and the structure of interest rate differentials. If European interest rate differentials continue to fluctuate and US growth only moderates, the dollar will be easily defended and difficult to attack, favoring a pattern of "consolidation at high levels and trading on data impulses." If employment deteriorates significantly and inflation declines rapidly, the dollar's upward trend will give way to a deeper mean reversion, with the key observation zone below 97.20, between 97.10 and 96.80 (near the lower Bollinger band and above the previous low).
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