US Dollar Index Holds Near 98.50 as Markets Eye Fed Easing and Consumer Sentiment

US Dollar Index Holds Near 98.50 as Markets Eye Fed Easing and Consumer Sentiment

The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, is holding near 98.50 in early Friday trading. After giving up previous session gains, the Greenback remains soft, weighed down by growing market expectations for Federal Reserve rate cuts starting in September.

Fed Signals Softening Stance

San Francisco Fed President Mary Daly reiterated on Thursday that it’s “reasonable” to anticipate two rate cuts in 2025, advising against waiting too long. Daly added that interest rates will likely stabilize at 3% or higher, exceeding pre-pandemic neutral levels.

This dovish commentary contributed to a pullback in the US Dollar, with traders increasingly pricing in a September policy shift, according to Reuters.

Retail Sales Reflect Economic Momentum

Despite the softer Dollar, recent data reflects ongoing economic activity. US Retail Sales rose 0.6% month-over-month and 3.9% year-over-year in June, showing continued consumer resilience. Still, this strength may not be enough to alter the Fed’s easing trajectory if inflation risks remain contained.

Key Economic Reports Ahead

Investors are now focused on the upcoming University of Michigan Consumer Sentiment Index, along with Building Permits and Housing Starts. These reports will offer further insight into consumer behavior and the broader economic outlook, potentially influencing short-term USD direction.

Outlook for the Dollar Index

With risk sentiment stabilizing and Fed officials sounding increasingly dovish, the US Dollar Index may struggle to regain bullish momentum unless today’s data surprises significantly to the upside. A break below 98.50 could open the door to further downside in the near term.