The Federal Reserve's interest rate cut expectations slowed, and the dollar rebounded modestly after oversold

The dollar index has entered a high consolidation stage after a series of rallies, and the previous increase of more than 1% has laid a solid foundation for the current trend.

The improvement in market sentiment is closely related to the strengthening of the dollar. The US Senate reached an agreement on the government funding plan, effectively avoiding the risk of a shutdown, easing short-term political uncertainty, and providing emotional support for the dollar beyond the risk-off premium.

At the monetary policy level, the market's repricing of the Federal Reserve's outlook is one of the central factors driving the stability of the dollar. With the nomination of a new chair, investors generally believe that the future policy stance may be more disciplined and cautious, and the pace of interest rate cuts will be less aggressive. WeTrade analysis pointed out that this shift in policy expectations is leading the market to reassess the long-term trend of the dollar.

This expectation has directly pushed up medium- and long-term U.S. bond yields, forming a structural positive for the dollar.

Inflation data also reinforces this logic. The latest release of US producer-side inflation shows that both headline and core indicators remain relatively high, indicating that upstream cost pressures have not yet eased significantly.

This not only undermines the market's bet on rapid easing, but also keeps the dollar relatively attractive among major currencies. In the short term, investors tend to maintain a basic allocation of dollar bulls ahead of key data releases, while managing volatility through range operations.

From the perspective of the daily structure, the dollar index rose rapidly after falling in the early stage, forming a clear rebound K-line combination, and the price re-stood on the short-term moving average system, indicating that the bulls are repairing.

The current index is running above the 97 mark, and the area has been transformed from the previous pressure level into a short-term support level. Although the daily momentum indicator has rebounded from the low level, it has not yet entered the extreme range, indicating that there is still room for the rebound, but the upward action can be weakened compared to the sharp rise stage. WeTrade reminds investors to pay attention to changes in key points in order to adjust trading strategies in time.

If the index can stabilize above the short-term moving average, the overall trend is still biased towards strong fluctuations; conversely, if it falls below the 97 line, it may trigger a technical correction and digest the previous gains.

Editorial opinion:

Overall, the strength of the US dollar index is not driven by a single factor, but the result of a combination of policy expectations, inflation reality and risk sentiment. In the context of inflation has not yet fallen significantly and monetary policy is difficult to pivot quickly, the US dollar still has some support in the medium term.

However, as the market gradually digests the good news, the risk of short-term chasing higher is rising, and the follow-up trend is more likely to unfold in the form of high volatility. It is necessary to be wary of the expected correction caused by key economic data, and it is more prudent to maintain a "strong but not chasing" attitude towards the dollar. WeTrade advises investors to remain flexible in the current environment to cope with possible market volatility.