Analysts cite softer US inflation and Fed policy risks as drivers for the US Dollar Index’s expected pullback from recent highs.
The US Dollar Index (DXY) is projected to decline into a 96.00–100.00 range after its rally since May lost momentum. Analysts attribute the shift to softer US inflation data and concerns over Fed Chair Kevin Warsh’s policy credibility, which may delay necessary tightening actions.
June’s PCE data showed a monthly decline of 0.1% and an annual rate of 3.7%, down from 4.1% in May. While US Q2 GDP growth missed estimates at 1.5% SAAR, domestic demand remained robust. The upcoming Employment Cost Index (ECI) data could further influence Fed policy expectations.
The Fed’s reliance on market-driven tightening, rather than direct action, is seen as a risk for inflation control. This dynamic is expected to weigh on the USD, reversing its recent gains.