US Dollar Index Hits Weekly Peak Near 99.80 but Faces Resistance from Fed Dovishness and Fiscal Risks

The US Dollar Index (DXY) climbed to a weekly high of 99.80 on Wednesday, extending its modest rebound into a second consecutive session. However, the Greenback’s rally appears to be losing momentum amid mounting concerns about the US fiscal outlook and increasing speculation over upcoming Federal Reserve rate cuts.

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Dollar Finds Temporary Strength Amid Better-Than-Expected US Data

The initial push higher in the DXY followed Tuesday’s release of durable goods orders, which dropped 6.3% in April—less than the forecasted 7.9% decline. While it marked a sharp reversal from the previous month’s 7.6% gain, the milder drop offered relief to investors fearing a deeper economic contraction.

Additionally, core durable goods orders (excluding transportation) inched up 0.2%, signaling underlying resilience in capital goods investment. These figures provided temporary support for the US Dollar by reducing immediate recession concerns.

Adding fuel to the bounce, the Conference Board’s Consumer Confidence Index surged to 98 in May from 85.7 in April—its largest monthly jump in four years. This increase reflects growing optimism surrounding the US labor market and economic outlook, especially in light of easing US-China trade tensions.

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DXY Rally Stalls on Fiscal Headwinds and Dovish Fed Signals

Despite the stronger data, the US Dollar’s gains remain capped as traders brace for the potential economic consequences of President Trump’s “Big, Beautiful Bill”—a sweeping tax cut and spending plan estimated to add $4 trillion to the federal deficit over the next decade. The bill, which cleared the House, now awaits a vote in the Senate.

Investors are also dialing up their bets on Federal Reserve rate cuts, pricing in at least two 25-basis-point reductions before the end of 2025. These expectations were reinforced by recent weaker-than-expected inflation data, which supports the case for a more accommodative monetary stance from the Fed.

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FOMC Minutes and Key US Data in Focus

While the DXY inches higher, bullish conviction remains weak as traders await critical updates from the FOMC meeting minutes scheduled for release later today. Any dovish tone from policymakers could trigger renewed USD selling.

Eyes are also set on this week’s US GDP revision (Q1 Preliminary) and the Core PCE Price Index—the Fed’s preferred inflation gauge—due Thursday and Friday, respectively. These reports will play a key role in shaping expectations for monetary policy and the broader direction of the US Dollar.

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Conclusion: Dollar Bulls Stay Cautious Ahead of Key Fed Signals

Although the DXY has rebounded off recent lows, the lack of sustained buying interest suggests that the rally may be short-lived. With the Fed leaning dovish, fiscal concerns rising, and rate cuts on the horizon, the US Dollar’s upside appears limited—at least until stronger catalysts emerge.

Traders and investors should closely monitor the FOMC minutes, upcoming inflation readings, and developments around the Senate vote on the fiscal bill, as these factors could reshape sentiment and influence the Greenback’s next move.

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