The US dollar index (DXY) rebounded to around 98.90 in Asian trading on Wednesday, ending a two-day losing streak. Investors adjusted their positions ahead of the Federal Reserve's interest rate decision, which temporarily stabilized the dollar.

Although the market widely expects the Federal Reserve (Fed) to announce a 25 basis point rate cut that evening, lowering the benchmark interest rate to 3.75%-4.00%, the downside potential of the dollar may be somewhat limited.

According to the CME FedWatch tool, the market has fully priced in the possibility of an October rate cut, while the expectation for a further rate cut in December is as high as 91%.

The latest Federal Reserve survey also indicates that the Fed may continue to cut interest rates in its next two meetings to address the risks of slowing U.S. manufacturing activity and falling inflation.

Market analysts point out that Jerome Powell's remarks at the post-meeting press conference will be crucial. A dovish tone, suggesting continued easing throughout the year, could put short-term pressure on the dollar.

Conversely, if the resilience of the economic fundamentals is emphasized, the US dollar index is expected to maintain its rebound momentum. Meanwhile, US President Trump stated in South Korea on Wednesday that the Federal Reserve will not raise interest rates and predicted that the US economy will achieve 4% GDP growth in the next quarter.

He emphasized that the U.S. manufacturing sector is experiencing a "strong recovery" and expects approximately $21 to $22 trillion in investment to flow into the United States by the end of his term.

However, markets still need to be wary of political uncertainties. The US government shutdown has entered its fifth week, leading to delays in the release of key economic data, including employment and inflation, making the outlook for monetary policy more uncertain.

From the daily chart, the US dollar index found significant support around 98.50 and rebounded near the 20-day moving average. A break above the 99.00 level would open up further upside potential, targeting the 99.45 and 99.80 areas.

Conversely, if it falls below 98.40, it may test the previous lows of 98.00 and the 97.75 area. The MACD shows that the bullish momentum is gradually strengthening, and the RSI has risen back to the neutral zone, indicating a mildly bullish short-term bias.


Editor's Note:

The current rebound in the US dollar reflects more of a technical correction and a stabilization of market sentiment ahead of the Fed's decision. If Powell hints at further rate cuts this year in his post-meeting remarks, the dollar index may come under renewed pressure and test the 98.00 support level.

However, if trade negotiations make substantial progress and US economic data releases return to normal, the medium-term outlook for the US dollar will remain supported. Close attention should be paid to changes in Powell's rhetoric and its impact on market expectations.