Forecast for the US Dollar Index in 2024: DXY bears target 87.00.

Market overview 2023 

In 2023, the US Dollar Index (DXY) was greatly affected by the Federal Reserve’s monetary policy. The Fed maintained steady interest rates across three policy meetings. However, Fed Chairman Jerome Powell’s remarks suggested potential rate cuts in 2024, with a particular focus on inflation reversals.

The change in tone resulted in a shift in the market consensus on Wall Street. This was evident in the market’s expectation of more aggressive easing, which diverged from the Fed’s end-of-2024 interest rate projection of 4.6%. Financial institutions such as Goldman Sachs, JPMorgan, and Macquarie responded by revising their forecasts, predicting earlier and faster rate cuts.

The dollar’s strength in 2023 was heavily influenced by global economic developments, with the slow growth of some of its key trading partners and the shift in trade policies contributing to a rise in demand for the US currency as a safe haven asset. These factors triggered the volatility of the DXY.

2023 US Dollar Index Performance

2023 Daily US Dollar Index (DXY)

The dollar’s strength in 2023 was heavily influenced by global economic developments, with the slow growth of some of its key trading partners and the shift in trade policies contributing to a rise in demand for the US currency as a safe haven asset. These factors triggered the volatility of the DXY.

In 2023, the DXY was relatively stable, with some notable bullishness on the upper side of its 200-day moving average during the early part of the year. However, after crossing below the weakside of this region in late 2023, the outlook turned negative. The US economy is expected to continue growing in 2024, supported by sustained private investment and solid consumer spending.

After experiencing significant increases during the pandemic, inflation is expected to return to a more moderate range of around 2.5% to 3% in 2019. The Federal Reserve is expected to start reducing its monetary stimulus in June, which will lead to a 25 basis-point reduction in the federal funds rate. This is a significant change from the previous years, when it aggressively raised rates.

This indicates that inflation is expected to gradually recede back to a more manageable level of around 2.5% to 3%. It marks a retreat from the high rates experienced immediately following the pandemic. The Fed’s 2019 policy outlook shows four rate cuts starting in June, which will bring the federal funds rate down to a range of 4.25 to 4.5 percent by year-end. This is significantly different from the more aggressive stance taken in previous years.

The cuts are expected to be placed ahead of a looming wall of corporate debt, which is expected to happen in 2025. Moreover, job gains are likely to slow down, which could result in an increase in unemployment. Nonetheless, solid employment and falling inflation are expected to lead to a gain in real disposable income, sustaining the expansion.

The trends in the foreign exchange market are expected to be influenced by the shifts in the U.S. currency against other major global currencies during 2024.

The price variance of the dollar index, which is a reflection of the strength of the US currency against other major currencies such as the euro and the British pound, is expected to be high due to the various geopolitical and economic factors that affect the market. In late 2023, the index fell to around 100.00, as investors reacted to the Federal Reserve’s dovish stance and the possibility of lower interest rates.

The dollar’s decline against other major currencies is expected to cause a change in the index’s composition. Emerging market developments, such as a strengthening of the currencies in these regions, could also lead to a shift in global trade balances. This could result in a reevaluation of the traditional currency pairs. In 2024, speculative positioning in the foreign exchange markets is expected to be affected by this shift.

2024 US Dollar Index Technical Forecast

The index could fall further if it breaks below the 100-820 support. The support level is derived from the descending triangle pattern’s height, which indicates that significant depreciation can occur if it breaks. Nonetheless, traders should remain vigilant for signs of a reversal due to how triangles can also turn unexpectedly.

The weekly chart of the DXY shows a flat support around 100.820 and lower highs of 107.348 and 114.778, which indicates that the market is in the process of falling. This pattern suggests that the sellers are dominating the market.