US Dollar Index (DXY) Shows Weakness Amid Diverging Fed and BoE Policies

US Dollar Index (DXY) Weakens on Rate Cut Speculation

The U.S. dollar index (DXY) slipped on Tuesday, reaching 100.88, approaching a one-year low. As expectations for imminent rate cuts by the Federal Reserve weigh on the dollar, the British pound has surged to its strongest level against the dollar since March 2022.

Market Sentiment Driven by Rate Cut Projections

Market sentiment is heavily influenced by anticipated interest rate cuts in the U.S. The likelihood of a 25-basis-point cut in the upcoming Federal Reserve meeting stands at 71.5%, while the possibility of a 50-basis-point cut is at 28.5%, according to CME Group’s FedWatch Tool. This speculation has been buoyed by recent comments from Federal Reserve Chair Jerome Powell, indicating potential policy adjustments without confirming specifics.

Pound and Euro Strengthen as DXY Weakens

• The British pound gained 0.25% to $1.32195, marking its highest level in over two years.
• The euro edged higher to $1.1166, just below a 13-month high.

While Powell's remarks point to a vigorous easing cycle in the U.S., Bank of England Governor Andrew Bailey suggests a more moderate path for rate cuts in the U.K.

Gold Prices Stabilize Amid Rate Cut Uncertainty

Gold prices have stabilized near recent highs, hovering around $2,500 per ounce, as market participants await clearer signals from the Fed about the expected size of rate cuts.

Technical Outlook for Dollar Index

The U.S. Dollar Index (DXY) remains near the December 28 low of 100.617. A sustained drop below this mark could lead to tests of lower support levels.