On Friday (July 18), the U.S. Dollar Index (DXY) fell to 98.33 intraday, down 0.30%, as the dollar retreated from the key 50-day simple moving average (SMA) near 98.70. After a steady rebound from the low of 96.377 in July, the U.S. Dollar Index encountered resistance below the 50-day moving average and failed to break through the recent high of 98.950. Traders are currently viewing 97.664 as the next technical support level, which is the 50% Fibonacci level of the short-term retracement.



Is the Fed's tightening narrative losing momentum?

Stronger-than-expected U.S. retail sales data and a drop in initial jobless claims last week briefly boosted the dollar and weakened market expectations for large interest rate cuts from the Federal Reserve. Traders now expect rate cuts of about 45 basis points for the rest of 2025, down slightly from 50 basis points at the beginning of this week. The adjustment in expectations came as June inflation data showed that the monthly increase in the consumer price index (CPI) hit a five-month high, which provided support for the Fed to postpone deeper rate cuts.

Investor sentiment remained fragile, however. Trump's newly passed tax cuts and spending package raised concerns about fiscal sustainability, while the president's continued criticism of Federal Reserve Chairman Jerome Powell for not cutting interest rates more quickly injected new political uncertainty into the market outlook.

Euro and pound rise but still headed for weekly losses

Despite Thursday's weaker dollar, the euro and pound are still likely to end the week lower. EUR/USD was last up 0.4% at 1.1643, while GBP/USD was up 0.26% at 1.3453. The dollar index, which tracks the greenback against six major currencies, was still up 0.5% this week and 1.4% over the past two weeks. However, the index is still down 9.15% so far this year, affected by the deep sell-off caused by policy uncertainty in March and April.

Consumer confidence rose slightly, inflation expectations fell

The University of Michigan's preliminary July report showed that its consumer confidence index rose to 61.8, the highest in five months, but still 6.9% lower than a year ago. Despite the improvement in indicators of current economic conditions, inflation expectations have cooled sharply: one-year inflation expectations have fallen from 5.0% to 4.4%, and long-term inflation expectations have fallen to 3.6%, the lowest since February. The easing of inflation concerns may curb bets on aggressive interest rate cuts by the Federal Reserve, but support the theme of overall economic stabilization.

Market Outlook: The US dollar index faces resistance, with support at 97.66


(Source of US Dollar Index Daily Chart: Yihuitong)

From a technical perspective, the US dollar index is still constrained by the downward 50-day moving average, and has failed to break through the recent highs. Unless the US dollar index can clearly close above the late June high of 99.421, the upward momentum will remain limited.

The short-term focus turns to whether the 97.664 support level can be maintained. If it falls below this level, it may further test the early July low of 96.377. As the fundamental positives weaken and political risks rise, the operating space for US dollar bulls is gradually narrowing.

At 00:24 Beijing time, the US dollar index was 98.3912/4108, down 0.24%.