The US Dollar Index (DXY) rallied sharply this week, reaching a fresh 13-month high of 101.13 before easing back to trade near the 100.70 level on Friday [1][2]. This move was driven by the Federal Reserve's (Fed) hawkish stance at its June meeting, where the Federal Open Market Committee (FOMC) left rates unchanged at 3.75% as expected, but revised its rate projections higher and embedded a hike bias for the year [1][2]. The new Fed Chair, Kevin Warsh, declined to signal the next move, emphasizing that restoring price stability remains the priority as inflation has stayed above target for years [1].
The Dollar's strength was attributed to yield differentials, as the Fed maintained a higher-for-longer posture while other major central banks, such as the Bank of England (BoE) and the Swiss National Bank (SNB), held rates steady [1]. The Greenback posted its largest gains against the Pound and the Swiss Franc, with the USD up 0.22% against GBP and 0.28% against CHF on the day [2]. The Euro also weakened, with EUR/USD declining over 0.80% for the week to the 1.1480 level [2].
Market participants are now focused on the upcoming US economic data, particularly the third estimate of first-quarter Gross Domestic Product (GDP), expected to confirm 1.6% growth, and the May Personal Consumption Expenditures Price Index (PCE), the Fed's preferred inflation gauge, due next Thursday at 12:30 GMT [1]. Core PCE is forecast to accelerate to 0.3% month-over-month from 0.2% [1]. A hotter-than-expected PCE report could reinforce the Fed's hawkish stance and extend the Dollar's upward trend, while a softer print could expose how much good news is already priced in [1][2].
The market has responded by pricing in a possible Fed rate hike by autumn, with inflation forecasts revised higher due to the ongoing Middle East conflict [1]. Resistance for the DXY is seen at the 101.00 round figure, with a break above opening room toward 102.00 [1].
CONCLUSION
The US Dollar's rally to a 13-month high reflects renewed confidence in the Fed's hawkish policy stance, especially as other central banks hold steady. Upcoming US inflation data will be pivotal in determining whether the Dollar can sustain its gains or if the rally loses steam. Market sentiment remains positive for the Greenback, with a high impact expected from next week's economic releases.